PLUS: CPAS IN BUSINESS How members and employers should use the new framework for PAIBs FINDING PURPOSE Awardees of the Best Corporate Governance Awards 2019 discuss business purpose HK$70.00 Issue 1 Volume 16 January 2020 DRIVING BUSINESS SUCCESS Johnson Kong on how he plans to connect with more members as the Institute’s new President SECOND OPINIONS What are the top priorities for accountants in 2020? W I D E N I N G T H E R E A C H
LLM(CR) application deadline 28 February 2020 Faculty of Law The University of Hong Kong Master of Laws in Compliance & Regulation Now accepting applications from industry professionals “This program is extremely exciting and reflects the growing demand (and need) for specialist training in the field of regulation and compliance.The world-class faculty, breadth of courses, and emphasis on the role of technology will no doubt make it very attractive to students looking to pursue or advance their careers in this field.” (Prof. Dan J Awrey, Professor of Law, Cornell University) llm.law.hku.hk/cr
PRESIDENT’S MESSAGE APLUS January 2020 1 Firstly, best wishes to you all for the year of the rat. I hope you have entered this new decade ready for the exciting new opportunities ahead. There will be exciting developments for our profession due to new technologies and the Greater Bay Area. To succeed, it is important to stay dynamic and alert to seize the initiative when opportunities arise. It is my honour to be the Institute’s President at the start of this new decade, which I believe will see our Institute transform. In order to lead its revitalization, I see three main areas for the Institute to develop over the year ahead. Firstly, the Seventh Long Range Plan. It is time for us to push on with this long overdue plan and ensure the Institute is appropriately positioning itself and providing the support to the profession in the ways it needs. Although a fiveyear plan may render some decisions obsolete in view of the rapid changes taking place in our profession, technology and otherwise, I believe it is still appropriate for setting objectives. Going forward, we need to review our long range plan at least annually to ensure its continuing relevance. Secondly, improving our member services and I am a strong believer of diversity and inclusion. We need to do more to ensure that our members feel connected to the Institute – throughout their careers and in whatever sectors they work in. With this in mind, I would like the Institute to undertake more free continuing professional development events like the members’ forums but targeted at specific groups of members such as those in business, students and retirees. Some of these groups, particularly the professional accountants in business, are hard to reach, but I believe that if we partner with some of the large corporations operating in Hong Kong we can offer sessions to a wider group of members. We should also review the interest groups, and see if there are areas where additional groups could be beneficial, including for different sports and recreational activities as well as professional and specialist sectors. In addition, high on my agenda is to offer the relevant training, networking opportunities, and other services including help accessing the opportunities in the Greater Bay Area, to help members succeed in the age of Accounting Plus. Finally, we need to do more – and better – at enhancing the image of our profession and improving communications. We need to elevate our members’ sense of belonging and make them be proud of being a member of a premier body. We’re Hong Kong’s largest professional body and we should be justifying the social status of accountants. When I joined the Institute, we had around 4,000 members – we now have over 10 times that number. We need to make sure they all feel included. We need to reach members, and also the young generations, to promote our profession and the opportunities within it. This should include more engagement with the media and enhancing our social media outreach. The Digital Strategic Plan revamping our digital services and presence is now in its third year. It is a task for Council this year to review the progress of the plan against its targets, and to determine whether to embark on the second phase of the plan to further enhance our digital presence. Another important piece of ongoing work is to establish an independent working group, which was decided upon by the Task Force for EGM Resolution 2 in October last year. The objective is to conduct public consultation and help formulate amendments to the Professional Accountants Ordinance necessary for the implementation of the election of the President and Vice-Presidents by all members of the Institute. As well as these developments we also have the introduction of the new Qualification Programme (QP) this year, with the Associate level being sat for the first time in June and the Professional level in December. I am excited to see the new QP being sat, as it has been a long time in development, and it will help the profession to continue to attract and nurture the accountants Hong Kong needs. Accountants are no longer just “accountants”, but are now Accountants Plus. So it is important that we offer ways into the profession for economists, engineers or even marine biologists, who want to develop the skills in the language of business that is accounting. I was honoured to be interviewed for A Plus. You can read more about me in the article on page 10. “ We need to elevate our members’ sense of belonging and make them be proud of being a member of a premier body.” Johnson Kong President Dear members,
CONTENTS Issue 1 Volume 16 January 2020 NEWS 01 President’s message 04 Institute news 08 Business news FEATURES 10 Leadership: Johnson Kong The Managing Director of BDO Hong Kong on his three main priorities this year as the Institute's new President 16 Second opinions What should be the top priority for accountants in 2020? 18 What’s the purpose? Winners of last year’s Best Corporate Governance Awards discuss the benefits of being a purpose-driven business 24 Framework for success The work and reasons behind the Professional Development Framework for Professional Accountants in Business 30 Accountant Plus: Wallace Lau The Hong Kong Chief Financial Officer of Alès Group Asia on how joining the haircare world allowed him to build new skills 36 How to Dr Hannah Sugarman, a Clinical Psychologist, on how managers can recognize and prevent burnout among employees 37 Thought leadership: Sue Lloyd The Vice-Chair of the International Accounting Standards Board and Chair of the IFRS Interpretations Committee explains the board’s stance on agenda decisions 38 Meet the speaker Wanda Suen, Partner at Hastings & Co., on the different aspects of her e-series covering performing acquisitions, fundraising activities and compliance matters SOURCE 39 Court of final appeal decision on employee payments An overview of why the benefits given to an employee were not 24 18 Framework for success What’s the purpose?
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 Copy Editor Jemelyn Yadao Junior Copy Editor Jeremy Chan Contributors Nicky Burridge and Jenni Marsh Editorial Office G/F, Bangkok Bank Building, 18 Bonham StrandWest, SheungWan, Hong Kong Advertising enquiries Advertising Director Derek Tsang Email: derektsang@mandl.asia Tel: (852) 2164-8901 President Johnson Kong Vice Presidents LamChi Yuen, Nelson, FongWan Huen, Loretta Chief Executive and Registrar Margaret W. S. Chan Head of Corporate Communications and Member Services Rachel So Editorial Manager Paul Smith 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 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 January 2020. Print run: 7,310 copies The digital version is distributed to all 45,327 members, 18,862 students of the Institute and 2,358 business stakeholders every month. for past services but related to other matters 42 Is paying taxes easy? A look at the methodology of the World Bank Group’s Paying Taxes study and Hong Kong’s ranking in it 45 TechWatch 207 WORK-LIFE BALANCE 48 Happy to help Institute members prove the vast ways CPAs can make a difference in the community through volunteer work 52 Young member of the month Stefanie Chen, Internal Audit Manager at Bureau Veritas 54 Leisure Plus Spotlight on Johannesburg; what members are currently reading and listening to 56 Let’s get fiscal Computers will keep taking and taking, warns Nury Vittachi 30 Combing the details Wallace Lau, Hong Kong Chief Financial Officer of Alès Group Asia, on how he uses his CPA background to handle challenges in the increasingly competitive space of haircare 54 48 Happy to help Leisure Plus
NEWS The Institute sends you and your family Chinese New Year blessings for the year of the rat. We wish you a year of happiness and great success. BCGA Series launches seminars The Best Corporate Governance Awards (BCGA) Series are designed to help participants learn ways to improve governance practices and prepare for changes to reporting requirements in Hong Kong. The seminar on 20 February will look at the latest risk management and internal control (RM and IC) practices, which are key areas in the assessment for the Institute’s Best Corporate Governance Awards. Speakers will share tips on what makes an effective RM and IC system. The seminar on 27 February will cover the latest trends in environmental, social and governance reporting, with the speaker sharing first-hand experience of advising a variety of businesses. More details on the two seminars can be found on the Institute’s website. ERP Series to cover end-to-end business processes The Enterprise Resource Planning (ERP) Series from February to May will cover the four critical end-to-end business processes and the embedding of internal controls when designing ERP systems. The speaker will share her experience on how to design an ERP system to bring managerial and operational efficiencies. Participants will also look at case studies and discuss audit procedures to test the adequacy of internal controls. More details can be found on the Institute’s website. AGM and Council meeting minutes Minutes from the 47th annual general meeting and December Council meeting are now available for members to read. They can be found in the “Members’ area” of the Institute’s website. Institute news Business news The Institute wishes you a prosperous year of the rat 4 January 2020
APLUS Resolutions by Agreement Chan Mei Ling, CPA (practising) Complaint: Failure or neglect to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 500 Audit Evidence. Chan audited the financial statements of a private company for the year ended 31 December 2016 and expressed an unmodified auditor’s opinion. In the audit, Chan failed to perform appropriate audit procedures to obtain sufficient evidence on the company’s accounts receivable, accounts payable and administrative expenses. Regulatory action: In lieu of further proceedings, the Council concluded the following action should resolve the complaint: 1. Chan acknowledges the facts of the case and her noncompliance with professional standards; 2. Chan be reprimanded; and 3. Chan pays an administrative penalty of HK$25,000 and the Institute’s costs of HK$15,000. Kwee Wei, CPA (practising), Wong Sau Ling, CPA and KPMG Complaint: Failure or neglect by Kwee and KPMG to observe, maintain or otherwise apply HKSA 200 (Clarified) Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Hong Kong Standards on Auditing, HKSA 500 (Clarified) Audit Evidence and HKSA 510 (Clarified) Initial Audit Engagements – Opening Balances. Failure or neglect by Wong to observe, maintain or otherwise apply HKSA 220 (Clarified) Quality Control for an Audit of Financial Statements. KPMG audited the consolidated financial statements of Modern Beauty Salon Holdings Limited, a Hong Kong listed company and its subsidiaries for the years ended 31 March 2014 to 2017. Kwee was the engagement partner and Wong was the engagement quality control reviewer. In 2012, the company issued a convertible note to its controlling shareholder and chairperson as consideration of a business combination. The terms of the note contained contingent settlement provisions which would obligate the company to redeem the unconverted outstanding balance of the note in cash when certain events occurred. Notwithstanding this, the company recognized its contractual obligation to pay interest for the note as a financial liability and the residual balance as an item in equity, whereas it should have comprised embedded derivative financial instruments and a financial liability. In their initial audit for 2014, the respondents concurred with the opening balances pertaining to the convertible note and failed to properly evaluate whether that accounting treatment complied with the requirements of Hong Kong Accounting Standard (HKAS) 32 Financial Instruments: Presentation. In 2017, the convertible note matured and part of it had to be settled by cash. The company then reassessed the initial accounting treatment of the note, and after discussion with the respondents, made prior year adjustments regarding the note. Regulatory action: In lieu of further proceedings, the Council concluded the following action should resolve the complaint: 1. The respondents acknowledge the facts of the case and their non-compliance with the relevant professional standards; 2. They be reprimanded; and 3. Kwee, Wong and KPMG jointly pay an administrative penalty of HK$35,000 and costs of the Institute and the Financial Reporting Council (FRC) totalling HK$62,828. Yam Tak Fai, Ronald, CPA (practising), Wong Wo Cheung, CPA (practising) and RSM Hong Kong Complaint: Failure or neglect by Yam and RSM Hong Kong to observe, maintain or otherwise apply HKSA 200 (Clarified) Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Hong Kong Standards on Auditing, HKSA 230 (Clarified) Audit Documentation, HKSA 330 (Clarified) The Auditor’s Responses to Assessed Risks, HKSA 500 (Clarified) Audit January 2020 5
Evidence and HKSA 530 (Clarified) Audit Sampling. Failure or neglect by Wong to observe, maintain or otherwise apply HKSA 220 (Clarified) Quality Control for an Audit of Financial Statements. RSM Hong Kong (formerly known as RSM Nelson Wheeler) audited the consolidated financial statements of Modern Beauty Salon Holdings Limited, a Hong Kong listed company, and its subsidiaries (collectively group) for the years ended 31 March 2010 to 2012 and expressed unmodified auditor’s opinions. Yam was the engagement partner and Wong was the engagement quality control reviewer. The FRC investigated the audits and noted audit irregularities concerning revenue recognition and a convertible note. The audit irregularities concerning revenue recognition related to the 2010 to 2012 audits. The group recognized the unutilized portion of prepaid service contracts as revenue when customers changed contracts before expiry, and the underlying service treatments had not yet been delivered. This was contrary to HKAS 18 Revenue. In the 2010 and 2011 audits, the respondents failed to consider the risk of material misstatement in relation to change in services or transfer of unutilized prepaid contracts, and failed to plan and perform audit procedures to test those transactions and the relevant internal controls. In the 2012 audit, the respondents identified the accounting non-compliance and, through audit tests performed, calculated the expected misstatements in the deferred revenue balance and the corresponding amount of revenue recognized in the financial statements. Management determined an amount based on the respondents’ calculation, and adjusted the financial statements accordingly. However, the respondents failed to justify that the management’s adjusted amount was sufficiently precise to correct the misstatements in the financial statements. The irregularity concerning the convertible note related to the 2012 audit. The company issued a convertible note to its controlling shareholder and chairperson as consideration of a business combination. The terms of the note contained contingent settlement provisions which would obligate the company to redeem the unconverted outstanding balance of the note in cash when certain events occurred. Notwithstanding this, the company recognized its contractual obligation to pay interest for the note as a financial liability and the residual balance as an item in equity, whereas it should have comprised embedded derivative financial instruments and a financial liability. In their audit, the respondents failed to properly evaluate those contingent settlement provisions against the requirements of HKAS 32 Financial Instruments: Presentation, and prepare sufficient audit documentation to support their conclusion on the classification of the convertible note. Regulatory action: In lieu of further proceedings, the Council concluded the following action should resolve the complaint: 1. The respondents acknowledge the facts of the case and their non-compliance with the relevant professional standards; 2. They be reprimanded; and 3. Yam, Wong and RSM pay an administrative penalty of HK$40,000, HK$10,000 and HK$50,000, respectively, and they jointly pay costs of the Institute and the FRC totalling HK$283,748. Disciplinary findings Chan Kwok Tung, Gordon, CPA (practising) and Gordon Chan & Company Certified Public Accountants Complaint: Failure or neglect to observe, maintain or otherwise apply HKSA 210 Agreeing the Terms of Audit Engagements, HKSA 500 Audit Evidence, HKSA 580 Written Representations, HKSA 700 Forming an Opinion and Reporting on Financial Statements and sections 100.5(c) and 130 of the Code of Ethics for Professional Accountants. Disciplinary findings INSTITUTE NEWS 6 January 2020
APLUS Chan is the sole proprietor of Gordon Chan & Company Certified Public Accountants which audited the financial statements of three private companies for two years. There were a number of deficiencies in the audits. Firstly, the respondents failed to agree the terms of the engagements with the companies’ management. Secondly, there were deficiencies in the audit procedures conducted on bank confirmations and income statements. Finally, the respondents failed to obtain written representations frommanagement and to state the date in two of their auditor’s reports. Decisions and reasons: The respondents were reprimanded and were ordered to jointly pay a penalty of HK$80,000 and costs of disciplinary proceedings of HK$31,931. When making its decision, the Disciplinary Committee considered the case was serious but noted that the respondents’ past clean disciplinary record and their cooperation throughout the proceedings were mitigating factors. Chan Mei Mei, CPA (practising), Ho Yiu Hang, Ricky, CPA (practising) and Asian Alliance (HK) CPA Limited Complaint: Failure or neglect by Chan and Asian Alliance to observe, maintain or otherwise apply 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 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment, HKSA 330 The Auditor’s Responses to Assessed Risks, HKSA 500 Audit Evidence, HKSA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures and HKSA 700 Forming an Opinion and Reporting on Financial Statements. Failure or neglect by Ho to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements. Failure or neglect by Chan and Ho to observe, maintain or otherwise apply sections 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants. Asian Alliance (formerly known as Zhonglei (HK) CPA Company Limited) audited the consolidated financial statements of Neo Telemedia Limited, a Hong Kong listed company, and its subsidiaries (collectively group) for the years ended 30 June 2011 and 2012. Chan was the engagement director and Ho was the engagement quality control reviewer of the audits. The Institute received a referral from the FRC about audit irregularities concerning certain acquisition transactions entered into by the group. The respondents failed to identify the incorrect classification and measurement of a contingent consideration payable by the group in one of the acquisitions. In addition, the respondents failed to perform sufficient audit procedures and prepare adequate documentation in respect of assessing the impairment of goodwill and other intangible assets arising from the acquisitions. Decisions and reasons: The respondents were reprimanded. The Disciplinary Committee ordered that the practising certificates of Chan and Ho be cancelled, with no issuance of practising certificates to Chan and Ho for 36 months and 24 months respectively, to be effective from 16 December 2019. Further, Chan, Ho and Asian Alliance were ordered to pay a penalty of HK$150,000, HK$110,000 and HK$200,000 respectively, and to jointly pay costs of the Institute and the FRC totalling HK$466,869.60. When making its decision, the committee noted that the public are entitled to expect practising accountants and corporate practices to discharge their duties and carry out their work to the highest standards. The respondents’ breaches demonstrated a lack of professional competence and are therefore serious. The committee further noted that it is important to maintain public confidence in the accountancy profession, and sanctions imposed should act as deterrence against non-compliance by accountancy professionals of the high standards expected of them. Details of the Resolutions by Agreement and disciplinary findings are available at the Institute’s website. January 2020 7
NEWS Business BAN ON UBS IPOS LIFTED EARLY The Securities and Futures Commission (SFC) has lifted a ban on UBS Hong Kong from leading initial public offerings (IPO) after 10 months, two months short of the initial one year it was given, following a review of the bank’s enhanced governance processes. The external reviewer looked at UBS’s sponsor work in its two most recent listing applications, which were completed prior to the ban, and found that the bank had performed adequate and effective due diligence. The ban, which came into effect in March 2019, prevented the bank from sponsoring or leading IPOs in Hong Kong following due diligence failings on three prior listings. The SFC has been cracking down on banks not properly carrying out their duties as sponsors, after a string of scandals at newly listed companies. US$8.14 BILLION A total of US$8.14 billion in anti-money laundering (AML) penalties for 58 AML-related breaches were issued globally in 2019, according to automated Know-Your-Customer solutions company Encompass Corporation. Breaches in the United States and the United Kingdom accounted for more than 30 percent of the total, with 25 penalties in the U.S. and 12 in the U.K. Fines were handed down by regulators across multiple jurisdictions such as Belgium, Bermuda, France, Germany, Hong Kong, India, Ireland, Latvia, Lithuania, the Netherlands, Norway and Tanzania. 2014 still holds the record for the highest total value of AML fines at US$10.89 billion. CHAIR OF GERMAN PAYMENT PROCESSOR RESIGNS AMID ACCOUNTING CONTROVERSY Wulf Matthias, Chairman of Wirecard AG, announced his resignation on 10 January after months of controversy involving the German digital payments company’s accounting practices. Thomas Eichelmann, member of the company’s supervisory board and head of the audit committee, will replace Matthias, who stepped down citing “personal reasons.” The company’s shares have steadily plunged for more than a year following media reports calling into question its accounting methods related to its Singapore branch, all of which Wirecard AG has denied. The company, headquartered in Munich’s Aschheim district, offers its customers electronic payment transaction services and risk management, as well as the issuing and processing of physical and virtual cards. KPMG in the United States opened its new US$450 million technology-focused training centre in Orlando, Florida, on 14 January. The move is part of the firm’s effort to keep its employees up to date on new technologies while also reinforcing important cultural values and giving workers a chance to interact with one another. The employee training facility, KPMG Lakehouse, aims to build on current skills and cover the basics of blockchain and artificial intelligence. The 800,000 square-foot facility will feature 800 guest rooms, 90 classrooms, a 1,000-seat hall and spaces for staff to meet with clients and test new tools and products. HONG KONG TO LEAD IPO MARKETS, SAYS PWC Hong Kong will continue to rank among the top three centres globally for initial public offerings (IPO), with over 180 companies expected to raise between HK$230 billion and HK$260 billion in 2020. This is according to PwC’s IPO Market Year End Review for 2019 and Outlook for 2020 released on 2 January. Despite the forecast being 17.6 percent lower than the total of HK$315.5 billion following 184 IPOs in 2019, the highest raised since 2010, the estimates are in line with the average of the past 10 years. To maintain its IPO position, the city hopes to draw more listings from large companies similar to Alibaba and Budweiser Brewing Company APAC, which listed in Hong Kong last year. New York’s Nasdaq is currently the second largest IPO market. AML FINES TOTAL KPMG U.S. OPENS TECHNOLOGY TRAINING CENTRE 9% Hong Kong’s Mandatory Provident Fund (MPF) is third choice for the city’s working population in terms of allocating their retirement savings, according a Hong Kong Investment Funds Association (HKIFA) survey. Hong Kong people put aside about 9 percent of their savings in the MPF and other pension plans, while around 53 percent of their savings goes into bank deposits and 21 percent in stock investments. “The working population believes that post-retirement income will come frommultiple sources, and relying on MPF alone will not be sufficient,” Terry Pan, who chairs the pensions subcommittee at HKIFA, said at a media briefing. HONGKONGERS PUT OF SAVINGS IN PENSION FUNDS IN 2019 8 January 2020
Global insurance group AIG in the United Kingdom has chosen Mazars to audit its U.K. operations, marking the first time the insurer has looked beyond the Big Four to audit its books. The change reflects new laws to stem the dominance of the Big Four, which audit 97 percent of U.K. listed companies. Founded in France, Mazars is the eighth-largest auditor in the U.K. by revenue and will begin auditing AIG U.K. in 2021. PwC, however, will still remain its group auditor. The appointment by AIG will further boost the profile of Mazars as the U.K. government considers recommendations from the competition watchdog to boost choice in the audit sector. Earlier last year, Mazars was also asked by Goldman Sachs to audit its European operations. APLUS Pfizer and GlaxoSmithKline announced this month plans to pursue an initial public offering (IPO) of its consumer-health joint venture in three to four years. The announcement was made by the Chief Executive Officer of Pfizer, Albert Bourla at the J.P. Morgan Healthcare Conference on 14 January. The two pharmaceutical giants combined their consumer healthcare units into a joint venture with the goal of creating the world’s largest over-thecounter drug business. The deal closed in August 2019, and the venture became the largest seller of drugstore basics such as Advil painkillers, Tums stomach tablets, Sensodyne toothpaste and Nicorette gum. The funds from the IPO are expected to go towards developing new medicines that draw on research in genetics and other fields. PFIZER AND GSK ANNOUNCES FUTURE IPO PLANS U.S. AND CHINA SIGN FIRST PHASE OF TRADE DEAL United States President Donald Trump and Chinese Vice Premier Liu He signed the first phase of a trade deal on 15 January, in a move to ease the 20-month trade war between the two nations. The agreement will see the U.S. reduce tariffs from 15 percent to 7.5 percent on US$120 billion in Chinese products. China has vowed to purchase at least US$200 billion in manufacturing, energy and agricultural products from the U.S., but did not specify any commitments to reducing any existing tariffs imposed on the U.S. The changes are set to take effect within 30 days of the pact’s signing. AIG U.K. ASSIGNS MAZARS AS AUDITOR A group of international accounting bodies released a report on 17 January outlining recommendations for better reporting and action to achieve the United Nation’s (UN) Sustainable Development Goals (SDGs) set for 2030. The report, Sustainable Development Goals Disclosure Recommendations, aims to establish best practice for corporate reporting on the SDGs and enable more effective and standardized reporting and transparency on climate change, social and other environmental impacts. The report, published by the Association of Chartered Certified Accountants, Institute of Chartered Accountants of Scotland, Chartered Accountants Australia and New Zealand, the International Integrated Reporting Council and the World Benchmarking Alliance, notes that current level of disclosure by organizations on sustainable development issues is insufficient in meeting the UN’s future SDGs, and that addressing this requires a collective effort from all sectors of society and businesses. The average hourly fees public companies pay to external auditors in the United States has increased by 31 percent over the past decade to US$283 in 2018, according to a new survey from the Financial Education & Research Foundation. The study of over 6,000 U.S. public companies noted that auditors who have to familiarize themselves with new accounting standards, such as new revenue recognition rules, are responsible for the fee increase. Public companies saw a larger increase in fees than private companies and nonprofits, which typically operate with fixed-fee arrangements. 31% U.S. AUDIT FEES UP BY IN THE PAST 10 YEARS ACCOUNTING GROUPS ISSUE REPORT TO MEET SUSTAINABLE DEVELOPMENT GOALS January 2020 9
LEADERSHIP PROFILE Johnson Kong PLANNING FOR OUR FUTURE Johnson Kong has been familiar with the ins and outs of the Institute for more than 25 years through leading and sitting on various committees. Based on that experience, the new President tells Jemelyn Yadao how he would like to help members prepare for a tough year ahead, and triumph by being specialists Photography by Leslie Montgomery 10 January 2020
APLUS January 2020 11
LEADERSHIP PROFILE Johnson Kong It’s 1993. Five partners stare at each other as they sit around a conference room table at lunchtime, bowls of wonton noodles steaming in front of them, and think about ways to expand the firm’s services beyond traditional audit and tax. One of them, Johnson Kong, had just come up with an idea. “I opened up my mouth and said, ‘Why don’t we do liquidations? KPMG is doing very well with the Bank of Credit and Commerce Hong Kong job!’ [Kong was referring to a global bank infamous for its secrecy and fraudulent activities.] They said, ‘It’s a good idea but who’s going to lead it?’” In the end, that big task was assigned to Kong, who had a mere three months’ insolvency experience under his belt after a secondment during his time at Touche Ross in England. “That was how we started offering our first specialist advisory service, and I had to learn on the job. I hired a senior manager who had experience in that area, so I learned from him too,” he recalls. Kong notes how the Institute also played a role in helping him quickly grasp his new specialism. “In 1993, I joined my first Institute committee – the Insolvency Practitioners Committee. Through that I had the opportunity to learn from others and expand my network in the field. That was a great stepping stone for me.” Kong continued on the committee for many years and later represented the Institute on the international federation for insolvency practitioners INSOL Board between 2005 and 2011. He also helped establish and chaired the Institute’s first faculty, the Restructuring and Insolvency Faculty in 2008, as well as introduced the first Specialist Qualification and Specialist Designation (Insolvency). Since 1994, Kong has been actively involved in the Institute and sat on a wide range of committees. Last year, he was chairman of the Professional Conduct Committee, Small and Medium Practices Committee, Ethics Committee and Greater Bay Area Committee. He has also served on the Institute’s Council since 2015 and was vice-president in 2018 and 2019. “Through being a Council member and two years of vice-presidency, I have gained a lot more knowledge about the Institute’s operations, the practical problems that the management and our members face, and the ways to resolve it. With those experiences, I understand the bigger picture.” This broad view has given him ideas on what he should try to accomplish this year as President. Three goals Developing and finalizing the Institute’s Seventh Long Range Plan is first on Kong’s list of priorities. “It is really long overdue,” he says. “But we really need the involvement and buy-in of a Chief Executive to issue a long range plan for the next five years.” With Margaret Chan now at the Institute as the new Chief Executive and Registrar, Kong is hopeful that the Institute can deliver more details on the new plan in the first half of the year. Another important focus area for him is the improvement of membership services. “Being a membership body, I really want to do a lot more for our members. My intention is to develop a plan to achieve this with the Council,” he explains. With the Institute’s incredibly diverse range of members, Kong has seen the difficulties of personally reaching out to all of them. “You could have 200 to 300 professional accountants in practice working in a large firm, making it easier for us to get to them. But in the commercial field, you may only have one member in a company. There are thousands of them so we should work differently to reach out.” Creating a new series of continuing professional development seminars or forums targeted at specific groups of members could be a way to address this issue, he says. “For example, we should have a members’ forum for our students, and one for our retired members,” he says. “We have a number of large corporate groups in Hong Kong, which will probably have a high number of members’ within its staff. Why don’t we run a forum specifically for that group? The same applies for government departments like the Audit Commission, Inland Revenue Department or the Treasury. So I would like to have more focused types of members’ forums. Reach out to certain groups, listen to them, gauge their needs, tell themwhat we do, and answer their questions.” Kong is keen to help small- and medium-sized practices (SMPs). “For example, one of the problems they face is the lack of resources. I want to build an initiative that would help SMP firms in Hong Kong build a network or affiliations of firms, so that they can share resources.” Another idea Kong has to enhance the way the Institute connects with members is to set up more interest groups. “We currently have 15 sports and recreational interest groups, and should look into other areas such as cycling, wine appreciation and yoga,” he says. “I would also like to see more professional and specialist interest groups, for example, a group for members working in the public and NGO sectors and another for the academic field. We could gear our seminars and activities towards their specific needs.” Kong also believes more work can be done to elevate the Institute’s communications and image. “I think we need to have a bigger budget to do that. We really need to work with media outlets.” Placing a significant emphasis on enhancing the image of accountants may help solve a problem the profession is currently facing, he says. “Many members have a low sense of belonging to the Institute, and one of the reasons for that is I don’t think professional accountants have the high social status that they used to have in the past,” he says. “We already interview a lot of successful members for A Plus. I would like to work with broadcast media and, for example, see if they can broadcast interviews with successful CPAs, because they are out there. We need to show not only our members but also the public that when you’re a CPA, the sky’s the limit. You can be Hong Kong’s Financial Secretary or the former 12 January 2020
APLUS Johnson Kong is the Managing Director of BDO Hong Kong. He specializes in financial investigation, forensic and litigation support, restructuring, receivership and insolvency related assignments. “ In the commercial field, you may only have one member in a company. There are thousands of them so we should work differently to reach out.” January 2020 13
LEADERSHIP PROFILE Johnson Kong Chief Executive of Macau – they are all CPAs. These are just examples of ideas I have.” In terms of communication with members, “Outreach through social media is really the way forward,” he says. “In addition, the Institute should also introduce new signature events and engage in more thought leadership work.” New learning… This year sees the first examinations of the new Qualification Programme (QP), starting with its new Associate Level in June. Kong believes the revamped programme, which is open to students with nonaccounting backgrounds and degrees, is more relevant to the current demands of markets and businesses. “If you’re able to recruit students from a more diversified background, not only does it offer a selection of different talents, skills and experiences that may be of benefit to the organization and their work performance, it can also help foster creativity and offer a range of perspectives and ideas,” he says. After the launch, the work shouldn’t stop there, he notes, particularly amid an ever-changing business environment. “I think we need to keep monitoring the syllabus and keep up in particular with IT advances and changes in our auditing and accounting standards. We really need to update our syllabus and study material on a regular basis.” He sees the QP as being vital in providing students with a breadth of knowledge and skills an accountant needs at a general level. “But I think as a way forward, one should really look into a specialization, and that’s one thing I would really like to push as President. We need to introduce more specialist qualifications and designations to equip our members.” ...But new challenges Kong believes much of the year will bring difficulties for businesses and members, thanks in part to uncertainties brought by the United States-China trade war and a challenging macroeconomic environment. “The U.S. and China signed a trade deal this month, but that’s only the first phase. There’s also the social unrest we have in Hong Kong, which will likely become a normality going forward. With those backdrops in mind, I think the downside risks are high. We have seen the economic reports in the last quarter showing declining numbers of tourists and trade volume, initial public offerings slowing down, so it’s going to be difficult year,” he says. Kong sees the weak economic climate having a negative impact on some members and less so on others. “Some members in the practising sector would be indirectly affected as clients will probably ask for reduction of fees or there will be fewer IPOs and mergers and acquisitions. On the other hand, insolvency and restructuring work is increasing based on my firm’s experience.” To prepare themselves, members should remain agile and move away from their comfort zone, he says. “We have to take the opportunity, Last year, Kong chaired the Professional Conduct Committee, Small and Medium Practices Committee, Ethics Committee and GBA Committee. He has served on the Institute’s Council since 2015 and was vicepresident in 2018 and 2019. 14 January 2020
APLUS no matter if we’re in commercial or practising, to enhance our own value, branch out and diversify so we can be more competitive. It’s really a game of survival.” Moving members One way for members to move out of their comfort zone is through exploring the potential business opportunities in the Greater Bay Area (GBA), says Kong. After the central government issued the Outline Development Plan for the Guangdong-Hong Kong-Macao GBA in February last year, the Institute set up its Greater Bay Area Committee last July, with Kong as its chairman. “We have done a lot of research on the GBA in the last six months, and we’ve created the ‘GBA Resource Centre’ section of the Institute’s website to display the information. We have also created a list of useful contacts that can be used when we start to push out our plans for the GBA. “The GBA is such a big project. I don’t think we alone can do the work ourselves. We have to collaborate with other organizations and other people, and governments including Hong Kong’s Commissioner for the GBA and the steering units of each of the 9+2 cities.” As chair of the committee, Kong has led a number of delegations, gathering information for members, particularly those concerned about the hurdles of working and living in the GBA. “We’ve found out that there are a lot of schemes and concessions being implemented by various cities and municipal governments,” he explains. These policies include free or low office and accommodation rents for startups and Hong Kong citizens, and cash allowances to cover travel costs. With most of the preparation work done, Kong is keen to start using the information collected to kick-start projects that will help members interested in moving across the border. One thing he would like to do is develop informative seminars for members about livelihood issues related to working and doing business in the GBA. “For example, how do you get your work visa? How do you hire staff and rent an office space? How do you register for tax and social security? How do you open a bank account? We should provide this information to those who are interested. “The second thing is, I want to give younger members an opportunity to try out working and living in the GBA. We have to work together with the local large enterprises, the state-owned enterprises in the Mainland and the large companies in Hong Kong with Mainland establishments. Providing those short-term employment opportunities to our younger members will give them first-hand experience of working and living there, and let them judge through that experience.” Keeping it in the family For Kong, the decision to pursue an accounting career was made very early on. “I come from a rather poor family. My father passed away when I was eight years old so my mother brought me up single-handedly,” he says. His mother wanted him to become a professional. “I’m not very good at science, so doctor was out. I’m not very eloquent or articulate, so lawyer was out too,” he laughs. “But I’m really glad I’m an accountant. I’ve gained a lot from being an accountant. I’ve got a good career, I’ve got a good home, a good family.” In fact, he is part of a family of accountants. “My wife is a Canadian chartered accountant, my son is QP graduate and my daughter is a U.S. CPA. Hand on my heart, I’ve never steered them on what they should do in their future careers, but somehow they ended up in accounting. I must not be doing that bad,” he laughs. Kong is not into sports, fitness or the complex tasting notes of wine. He likes to eat – especially around midnight. “I enjoy going out for midnight supper or late night snacks,” he says. “I enjoy driving my car from my home to, say, Wan Chai or Sheung Wan around 11:30 p.m. when it’s nice and quiet. While I’m driving, I’ll turn on the music that I like. It’s a feast because I’ll go to one shop for a bowl of noodles and then when I’m done I’ll go to another shop for a bowl of congee.” After eating his way through the city, Kong would be back at home around 1:00 a.m. “That’s how I get work-life balance.” Choosing to slow down the pace once in a while is perhaps understandable for a person whose professional life has been mostly defined by fast-pace changes and growth. Kong qualified as a CPA in the United Kingdom in the 1980s and came back to Hong Kong in 1987, joining KPMG for 18 months. He then joined what would become BDO in 1989. “I’ve been with this firm for over 30 years now. We started off as a local firm, not even a BDO member firm until 1997. I became one of five partners in 1991 and at the time we were a medium-sized local firm with less than 100 people,” Kong remembers. “Now we have grown to more than 1,100 staff in Hong Kong and over 40 partners. Seeing the firm grow over the years and building up the entire nonassurance practice of the firm has been very fulfilling.” “ We have to take the opportunity, no matter if we’re in commercial or practising, to enhance our own value, branch out and diversify so we can be more competitive. It’s really a game of survival.” The Greater Bay Area Committee, which is chaired by Johnson Kong, has put together an ongoing collection of policies, research and event information from the Big Four, the government, institutes and chambers on the “Greater Bay Area Resource Centre” section of the Institute’s website. January 2020 15
SECOND OPINIONS: WHAT SHOULD BE THE TOP PRIORITY FOR ACCOUNTANTS IN 2020? SECOND OPINIONS Technology JONATHAN LABREY CHIEF STRATEGY OFFICER, INTERNATIONAL INTEGRATED REPORTING COUNCIL The pressure on business to report increasing amounts of data on top of financial information has been felt around the world, including in Hong Kong. However, data is often reported without context and without real insight into how it is linked to the strategy and business model of the organization. Academic evidence demonstrates that adopting an integrated reporting (<IR>) approach, as advocated by the International Integrated Reporting Council (IIRC), has led to companies experiencing a lower cost of capital, longer term investors and a better share price performance. In November 2019, the International Federation of Accountants (IFAC) urged regulators and standard setters around the world to use the International Integrated Reporting Framework (International <IR> Framework) as a foundation for reporting, noting that it provides a basis for narrative information and metrics that enable organizations to more effectively communicate. This evolution in reporting is crucial, especially given the World Economic Forum’s assessment that the most pressing risks facing businesses are not financial but social, environmental and technological. <IR> can be a skeleton for reporting, on which the different strands of reporting organizations currently publish are placed to create a single source of truth and a coherent value creation story – creating an antidote to the confusion that can be caused by producing a myriad of unconnected reports. Bill Thomas, Global Chief Executive Officer and Chair of KPMG recently said, “We must be really clear on what success looks like. It must not be defined solely by the number of companies that claim compliance [in reporting]. Real success can only be found in the board room when <IR> becomes embedded in the systems and the processes that underpin decision making.” The key principle behind <IR> is the concept of multi-capitalism. That organizations have to think about and account for the natural, social and relationship, intellectual, human, financial and manufactured resources that they use, create or impact. By managing these interconnected “capitals” effectively and efficiently, organizations are in a better place to take decisions that lead to long-term sustainable development and financial stability within the business. The International <IR> Framework offers the guiding principles and content elements for them to achieve this. As the organization behind this movement, the IIRC is working with partners around the world, including Hong Kong, to support businesses make this transition to <IR> and take advantages of its benefits. Why not make 2020 the year your organization joins over 2,000 others, including CLP and Swire, in more than 70 markets by applying the principles of <IR>? 16 January 2020 “ Data is often reported without context and without real insight into how it is linked to the strategy and business model of the organization.”
APLUS With rapidly changing technology in the modern world, marketing anything has become very different. So how should accountants market themselves for better career progression? With the pace of digitalization and attention span, it is important to stay visible by sharing insightful business-related updates on your LinkedIn or other professional social media platforms regularly. Remember that your profile appears on the newsfeed of human resources directors, recruiters and potential employers in your network. From that, hiring managers will be made more aware of your background and approach you with new opportunities. Take courses that relate to data analytics, data management and prep yourself to be more savvy with systems and platforms. You should also attend networking events and seminars to broaden your network especially with professions across different industries. You should attend events from the Institute, professional bodies and chambers of commerce to help raise your profile and branding. Within an organization, it is also important to strengthen your personal branding. Companies are undergoing business transformation and traditional accounting is no longer needed in first-tier cities such as Hong Kong, Singapore and Shanghai. If you are in the traditional side of accounting processes, you would need to rebrand yourself and offer more. However, you do not have to turn yourself into another person. More critical to your growth is demonstrating flexibility to the management team. Be more proactive in participating in new projects, raise your hand to take on new roles and responsibilities, and get yourself involved in working on business process improvements for the company whenever there is a chance. If you are already in the newer functions of the accounting process, you would also need to constantly work on your personal branding. Keep yourself ahead of the newest industry trends, pay more attention to the macro economy and identify the potential effects within your own company. Be more vocal and proactive in sharing market or industry insights, and make suggestions for continuous improvement to business processes on a company level. KEVIN FITZGERALD MANAGING DIRECTOR – ASIA, XERO AMANDA WU ASSOCIATE DIRECTOR, MICHAEL PAGE HONG KONG Hong Kong’s economic downturn means that now, more than ever, accountants are being sought out by their clients to provide services that are over and above traditional compliance support. In particular, we are seeing that small- and medium-sized enterprises (SMEs) are increasingly turning to accountants for advisory services to help them ride out the economic slowdown. Advisory services are an incredibly valuable, and growing, revenue stream for accountants, which they need to capitalize on. We recently commissioned extensive research among accounting firms in Hong Kong and Singapore, and found that almost 40 percent of revenue in the Hong Kong accounting market was generated from advisory services. While this is positive to see, other markets are already much further ahead. If we take Singapore as a comparison, advisory revenue is 38 percent higher than in Hong Kong. A significant difference. So, what is the reason behind this? Leveraging the power of platforms could be one of the clear differentiators. In the business-to-business world, the rise of apps has allowed businesses to tailor a suite of tools that cater to their needs – in turn this also increases productivity and reduces costs. For example, our research data revealed that firms that are harnessing data automation apps to streamline and automate their work stream are also taking on more value-added advisory services. Looking again at our data, we see that in Singapore, 67 percent of accounting firms are already using data automation apps, compared to only 48 percent in Hong Kong. This could in part explain the difference in revenue from advisory services. Turning the spotlight back onto Hong Kong, our research shows that data automation has made the top performing accounting firms twice as efficient as regular firms. In fact, firms that have adopted data automation tools have cut down their client-servicing hours from the industry average of 518 hours to 249 hours per client. Conversely, among the firms that have yet to adopt these tools, client over-servicing continues to be rife. These accounting firms still record or share financial data through labour-intensive and inefficient methods, such as storing physical receipts in bags or boxes and relying on the use of spreadsheets and journals to manually record transactions. These manual and repetitive tasks can prevent accountants from using their time to offer valuable business consultancy. To successfully capitalize on the demand for advisory services, accountants need to upskill and leverage data automation tools to streamline their basic workflow. “ Accountants need to upskill and leverage data automation tools to streamline their basic workflow.” “ Keep yourself ahead of the newest industry trends, pay more attention to the macro economy and identify the potential effects within your own company.” January 2020 17
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