HK$70.00 Issue 3 Volume 16 March 2020 DRIVING BUSINESS SUCCESS S T A Y I N G Jack Chan, EY’s Greater China Regional Managing Partner, on the strength of Hong Kong amid current uncertainties PLUS: CORPORATE GOVERNANCE Celebrating 20 years of the Best Corporate Governance Awards ACCOUNTANT PLUS Sabrina Khan, Chief Financial Officer of Aptorum Group Limited SECOND OPINIONS Do professional accountants in business really need to be experts in data analytics? S T R O N G
PRESIDENT’S MESSAGE APLUS March 2020 1 I want to start off my message this month by paying tribute to a valued senior management staff of the Institute, Mary Lam (Director of Member Support) who passed away on 18 March. Mary had been with the Institute for over 23 years. Throughout all these years I had the privilege of working together with her in various capacities. She was a very loyal, competent and cheerful lady and had contributed greatly to the development of our profession. Mary will be deeply missed by all of us and we express our heartfelt sympathy to her family. Since the outbreak of the now pandemic novel coronavirus in January, it has been a trying time for all of us. Our daily activities are disrupted. While we are now in springtime, our economy has entered a cold winter. Many commercial sectors are facing a free-fall-like decline in business, and the future is full of uncertainty. Towards mid-March, it began to look like Hong Kong was turning a corner with the containment of the outbreak, but the latest round of overseas returnees has created a second wave of challenges. A career in insolvency has taught me to never consider a matter resolved until the ink is dry. Although events were held for a few days, and we all wish to return to normal, these are still extraordinary times, and we must continue to act extraordinarily to surmount them. The Institute’s continuing professional development activities are being delivered via webinars, many staff are working from home, the library is closed, counter hours are restricted, and face-to-face meetings are replaced by teleconferences. Nevertheless, the Institute is hard at work, issuing technical alerts, responding to queries, and putting in place contingency measures to address the evolving situation. These measures are a balance between the needs of members and students to access our services against health considerations for members, students and the Institute’s staff. Although the cancellation of the Council’s Away Day in February has somewhat delayed the discussion of the strategies and initiatives of the Institute’s upcoming long range plan, I am pleased to say that significant progress has been made in forming the framework to guide the development of tactical action plans. The finalization of the plan should occur in the second quarter of the year. As has previously been reported, based on the Governance Committee’s recommendation endorsed by the Council late last year, an Independent Working Group (IWG) will be set up to replace the Task Force for EGMResolution 2. Reporting directly to the Council, the role of the IWG is to explore and help formulate amendments to the Professional Accountants Ordinance for the implementation of one-member-one-vote election of the President and Vice-Presidents. I am pleased to announce that the Council has recently approved the terms of reference and the composition of the IWG. The initial task for the IWG is to submit a draft report to Council on a public consultation. As accountants, one of our key responsibilities is to know the financial health of the organizations or individuals we work for or advise. Given the deteriorating economic outlook, it is important to take steps to prepare for all possible financial eventualities. The Institute’s Restructuring and Insolvency Faculty Executive Committee has recently published guidance, How to Manage Financial Distress: Advice for Businesses and Individuals, in both English and Chinese to help advise them. The English version can be found on page 44. To help companies through these difficult times, the Institute has been advocating again the introduction of corporate rescue laws or provisional supervision, similar to corporate voluntary arrangements and administrations in other jurisdictions. Hong Kong, as an international financial centre, needs such provisions, with the introduction of a moratorium period during which all legal actions are stayed. These would help to shield debt-stricken companies and give them the time to restructure their businesses. I urge the government to speed up the process of introducing proper corporate rescue legislation. Proposals for such have been raised a number of times since 1996, and so I hope that now we can finally get the protection needed for businesses to find a “white knight” saviour to help them through this economic downturn. In addition, on various occasions, I have been calling for a review of the maximum amount of the ex gratia payments out of the Protection of Wages on Insolvency Fund. Some of the limits have not been adjusted for many years and are very much outdated. Considering the situation, the upward adjustments of these limits are warranted. We are facing challenging and turbulent times. The Institute will continue to support our members and practices in weathering this crisis. Together, we must go forward as one to meet these challenges. I am confident that we will eventually come out of the doldrums much better and stronger! “ We are facing challenging and turbulent times. The Institute will continue to support our members and practices in weathering this crisis.” Johnson Kong President Dear members,
CONTENTS Issue 3 Volume 16 March 2020 NEWS 01 President’s message 04 Institute news 06 Business news FEATURES 08 Leadership: Jack Chan The Greater China Regional Managing Partner of EY on the growth of Mainland China’s economy, and what it means to adapt as an auditor 14 Second opinions Do professional accountants in business really need to be experts in data analytics? 16 Super-connecting Hong Kong How the implementation of 5G in Hong Kong this year affects consumers as well as businesses across various sectors 22 Thought leadership: KK So The Partner, Tax Services at PwC Hong Kong on the government’s 2020-21 financial budget 23 How to Karen Ho, Head of Corporate and Community Sustainability at WWF Hong Kong, on how companies can achieve their sustainability goals 24 The awards of change How Hong Kong’s corporate governance landscape has evolved over the last two decades 30 Accountant Plus: Sabrina Khan The Chief Financial Officer of Aptorum Group Limited on the many life-changing lessons she’s learned from career challenges 38 Meet the speaker Ferry Choy, Managing Director of Flagship Appraisals and Consulting Limited, on his e-series on valuations SOURCE 39 Paying taxes in China A look at Mainland China’s performance in the World Bank Group’s Paying Taxes report 24 16 The awards of change Superconnecting Hong Kong
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 KateWhitehead Registered Office 2/FWang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong Advertising enquiries Advertising Director Derek Tsang Email: derektsang@mandl.asia 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 March 2020. Print run: 7,290 copies The digital version is distributed to all 45,078 members, 19,731 students of the Institute and 2,358 business stakeholders every month. 42 Goodwill: improvements to subsequent accounting An overview of a joint research paper on accounting for goodwill 44 How to manage financial distress What companies and individuals can do to minimize their financial risks 46 TechWatch 209 WORK-LIFE BALANCE 48 The ones to beat CPAs on why martial arts is a way of living and breathing 52 Young member of the month Nicole Law, Audit Manager at EY 54 Leisure Plus Spotlight on Hong Kong’s hiking trails; what members are currently reading and listening to 56 Let’s get fiscal Try not to put everything on company expenses, says Nury Vittachi 30 Saving lives How Sabrina Khan, Chief Financial Officer of Aptorum Group Limited, went from helping with a listing to leading an IPO project for a pharmaceutical company 54 48 The ones to beat Leisure Plus
NEWS Roundtable discussion: comprehensive review of the HKFRS for Private Entities The Institute is holding a roundtable discussion on 18 May, gathering the Institute’s staff and preparers or practitioners of financial statements applying the HKFRS for Private Entities, to respond to the International Accounting Standards Board’s Request for Information (RFI) for the IFRS for SMEs standard/HKFRS for Private Entities. Members are invited to join the roundtable to share their views on whether and how aligning the IFRS for SMEs standard with the full IFRSs would benefit users of financial statements without causing undue cost for small- and medium-sized enterprises. Any revisions to the IFRS for SMEs standard will be incorporated in the HKFRS for Private Entities in accordance with the Institute’s convergence policy. Members can also submit comments on the RFI to the Institute by 12 June. Corporate Finance Series webinars Enrol in the webinars on 15 April and 29 April to learn about the different types of secondary fundraising for listed companies and gain insights on how to handle corporate acquisitions or disposals from compliance prospective. Recordings of free webinars now available The three webinars on topics related to the COVID-19 pandemic held in February and March are now available for free via the e-Seminars website. The courses are: leading and motivating a virtual team; practical employment issues arising out of COVID-19 outbreak; and the impact of COVID-19 on commercial contracts and points to consider in a business continuity plan. It was with much sadness that we learned of the sudden passing away of Mary Lam, the Institute’s director of member support, and a member herself, on 18 March 2020. Mary worked at the Institute for over 23 years and made a very valuable contribution to its work with her all-round knowledge and abilities, coupled with a tremendous dedication and helpfulness. During her career at the Institute, Mary provided support to members in a very wide range of areas, including members in business, small- and medium-sized practices, young members, Mainland affairs, restructuring and insolvency, forensic accounting, corporate finance, corporate and Institute governance, tax training, and continuing professional development. She will be greatly missed by her colleagues and friends in the profession. We express our deepest condolences to her family. Institute news Business news The Institute pays tribute to Mary Lam 4 March 2020
APLUS Disciplinary findings Hu Chiu Lun, Alan, CPA Complaint: Failure or neglect to observe, maintain or otherwise apply Hong Kong Standard on Quality Control 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements (HKSQC 1), the fundamental principle of integrity in sections 100.5(a), 110.1 and 110.2 of the Code of Ethics for Professional Accountants, and the fundamental principle of professional competence and due care in sections 100.5(c) and 130.1 of the Code, and being guilty of professional misconduct. Hu was practising in his own name and was responsible for his practice’s quality control system and the quality of its audit engagements. In 2016, the practice was subject to its first practice review which identified deficiencies in its quality control system concerning the monitoring process and custody of engagement documentation. In 2017, a follow-up practice review was carried out and the Institute found that the practice had failed to rectify the deficiencies previously identified. In addition, significant deficiencies were found in procedures conducted on revenue recognition, external confirmations and forming the auditor’s opinion in the practice’s audit of a private company. In that audit, Hu compiled certain working papers after the auditor’s report date and knowingly misrepresented to the reviewer that those working papers were prepared, and documented procedures performed, before the auditor’s report was issued. Decisions and reasons: The Disciplinary Committee reprimanded Hu and ordered cancellation of his practising certificate with no issuance of a practising certificate to him for 22 months with effect from 15 March 2020. In addition, Hu was ordered to pay a penalty of HK$30,000 and costs of disciplinary proceedings of HK$30,000. When making its decision, the committee took into consideration the particulars of the breaches committed in this case, Hu's conduct throughout the proceedings and his personal circumstances. Law Kwong Wah, CPA Complaint: Failure or neglect to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment; HKSA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements; and HKSA 500 Audit Evidence; HKSQC 1; and the fundamental principle of professional competence and due care in sections 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants. The Institute completed a practice review on K.W. Law & Co. (practice) of which Law was the sole proprietor. The review identified significant deficiencies in the practice’s quality control system and two audit engagements reviewed by the practice reviewer. Decisions and reasons: The Disciplinary Committee reprimanded Law and ordered that he would not be issued a practising certificate for 18 months effective from 4 February 2020. In addition, Law was ordered to pay a penalty of HK$50,000 and costs of disciplinary proceedings of HK$51,785. When making its decision, the committee took into consideration the particulars of the breaches committed in this case, Law’s conduct throughout the proceedings and his personal circumstances. Details of the disciplinary findings are available at the Institute’s website. March 2020 5
NEWS Business KPMG U.S. APPOINTS NEXT CEO KPMG in the United States elected Paul Knopp as its Chief Executive Officer. He will succeed current CEO Lynne Doughtie, and his five-year term will begin on 1 July. Knopp has been with the firm for 36 years and has extensive HK$2.2 BILLION Beijing-based drug developer InnoCare Pharma Ltd. raised HK$2.2 billion from its initial public offering (IPO) in Hong Kong. The biotech company’s IPO, announced on 11 March, was nearly 300 times oversubscribed after pricing at the high end of the asking range. The final price per share of InnoCare was HK$8.95. The company moved all its presentations to investors online ahead of the IPO amid coronavirus concerns, and became the first company to debut its IPO via a virtual listing ceremony at the exchange. Its listing comes amid volatile market conditions as the coronavirus pandemic has caused the worst economic and stock market downturn in a decade. PWC U.S. PAYS US$11 MILLION IN DISCRIMINATION LAWSUIT PwC in the United States agreed to pay US$11.6 million to settle a lawsuit claiming it had discriminated against older job applicants for certain positions at the firm. The lawsuit was filed almost four years ago in a California court by Steve Rabin, a 53-year-old accountant, who alleged that the firm had violated federal age discrimination and fair employment acts. The lawsuit also brought into question the low number of workers over 40 in entry-level and lower to mid-tier positions, and claimed the firm’s policies would deter potential applicants. After agreeing to settle the charges, the firm agreed to enhance its recruiting procedures to attract qualified older applicants, as well as alumni, to be hired for entry-level jobs. “The commitments in this settlement will help PwC remain one of the most sought-after employers in the country,” said Shannan Schuyler, Chief Purpose and Inclusion Officer at PwC. The Securities and Futures Commission (SFC) imposed HK$1.29 billion in fines in 2019, according to a study by international law firm Freshfields Bruckhaus Deringer. The fines are 563 percent higher than the previous year and 55 percent higher than the total of the previous four years’ worth of fines at HK$830 million. The higher fines come as the city’s watchdog hopes to tackle malpractice in the city and raise the quality of new listings. Five investment banks were fined HK$814 million over sponsor failures in three initial public offerings, with UBS receiving the biggest fine of HK$375 million. UBS also received a separate HK$400 million fine for overcharging clients and related internal control failures. HKEX WARNS OF TOUGH YEAR AHEAD DESPITE PROFIT Hong Kong Exchanges and Clearing (HKEX) noted that despite achieving a 1 percent rise in annual profit to HK$9.39 billion in 2019, factors such as the COVID-19 pandemic are likely to pose challenges to the global market. The profit came as a result of new listings and a higher turnover from the stock connect scheme, though falls short of the forecasted 2 percent growth, according to analysts polled by Bloomberg. Chief Executive of HKEX Charles Li noted that while the bourse operator expects more listings to take place in the second half of the year, “it will be too early to say how the virus will affect the whole year’s performance in the IPO market.” DRUG DEVELOPER INNOCARE PHARMA RAISES OF FINES THE SFC HANDED OUT IN 2019 FROM IPO SEC ADJUSTS AUDIT REQUIREMENTS The United States’ Securities and Exchange Commission (SEC) voted on 12 March to ease audit requirements for small, publicly traded companies in the country. The new changes will reduce compliance costs for public companies with less than US$100 million in revenue and less than US$700 million in outstanding shares for five years. The changes were originally considered by the SEC in May 2019 as part of an initiative to make it easier for companies to file for an IPO. Jay Clayton, Chairman of the SEC, said the new measures build on the Jumpstart Our Business Startups (JOBS) Act, a law intended to encourage funding of small businesses in the U.S. by easing the country’s securities regulations. “The amendments represent an incremental, but meaningful, change that builds on the benefits of the JOBS Act for smaller public companies,” Clayton said. HK$1.29 BILLION experience serving large multinational clients and leading several of the firm’s global audit engagements across a variety of industries. He has also served on KPMG’s board of directors, including as lead director. 6 March 2020
A plan by the United Kingdom to allocate £100 million to tackle money laundering has been backed by campaigners, who claim that Britain is falling behind in the fight against illicit financing. The new levy, announced by Chancellor of the Exchequer Rishi Sunak on 11March, is part of confirmed plans in the U.K.’s 2020 budget to supplement public sector funding. This includes a charge paid by all groups that are subject to U.K. Money Laundering Regulations, which include banks, accountants, estate agents and solicitors. The levy will be used to purchase new technology to aid law enforcement and hire more financial investigators. It will also help kickstart measures in the latest Economic Crime Plan, which was announced by the National Crime Agency (NCA) in July 2019. The NCA’s crime plan aims to crack down on illicit financial flows by coordinating efforts between the public and private sector, such as by bringing cryptocurrency asset businesses under anti-money laundering rules. APLUS NYSE CLOSES TRADING FLOOR AMID COVID-19 The New York Stock Exchange (NYSE) opened without its trading floor for the first time in its 228-year history on 23 March, to contain the spread of COVID-19. New York had over 59,000 confirmed cases as of 30 March, comprising more than half of all cases in the United States. The NYSE began operating on a fully electronic basis after four individuals tested positive for the coronavirus. All brokers are required to work remotely. The move is unlikely to affect investors, whose orders are executed electronically as a result of existing contingency plans put in place. ANTI-MONEY LAUNDERING PART OF U.K. BUDGET INITIATIVES JD.com has approached investment banks Bank of America and UBS to arrange a secondary listing in Hong Kong. The Beijing-headquartered e-commerce company, which went public on Nasdaq in 2014, plans to list on the Hong Kong Stock Exchange as early as the first half of 2020, according to the Hong Kong Economic Times. The plan follows competitor Alibaba, which went public in Hong Kong in November 2019. Despite its plans to list amid the coronavirus outbreak, which has affected over 80,000 in Mainland China, the company has forecast revenues to rise by at least 10 percent in the first quarter as consumers stuck at home during the countrywide quarantine turned online for most of their shopping needs. JD.COM EYES SECOND LISTING IN HONG KONG GLOBAL MARKETS: FALLING FAST The COVID-19 pandemic has seen global stocks experience their worst six weeks since the Global Financial Crisis of 2007-08. Markets have fallen by over a third as measured by the FTSE Global All Cap Index, which tracks the performance of the large, mid and small cap stocks globally and contains around 8,000 stocks from developed and emerging markets. SoftBank Group plans to sell US$14 billion in shares of Chinese e-commerce giant Alibaba in a bid to raise US$41 billion, reduce its debt and restore investor confidence amid the coronavirus pandemic. The Japanese SOFTBANK TO SELL ALIBABA SHARES TO PROTECT BUSINESS conglomerate, which saw its market value drop nearly 40 percent compared to February, is considering raising the remainder of the money by selling a stake in SoftBank, its domestic telecommunications arm, as well as a part of Sprint Corp. following its merger with T-Mobile U.S. Inc. The move, announced on 23 March by SoftBank Chief Executive Officer Masayoshi Son, sent its stock up 21 percent in Tokyo the following day. 0 50 100 150 FTSE Global All Cap Index (rebased to 100) 2008 (16 September (100) - 27 October) 2020 (14 February (100) - 23 March) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Index (rebased to 100) Days March 2020 7
LEADERSHIP PROFILE Jack Chan 8 March 2020
APLUS STAYING RESILIENT Jack Chan, EY’s Greater China Regional Managing Partner, has enjoyed a front row seat for much of Mainland China’s economic development. He talks to Kate Whitehead about being involved with the country’s first wave of initial public offerings and now the development of green finance Photography by Calvin Sit March 2020 9
LEADERSHIP PROFILE Jack Chan Jack Chan was preparing for a trip to Shanghai and Beijing to meet some key clients in early March. The travel restrictions in response to the COVID-19 outbreak meant he needed to self-quarantine for two weeks on his return, but Chan, EY’s Greater China Regional Managing Partner, was unperturbed. This trip had been postponed a couple of times and couldn’t be put off any longer. Besides, he’s got the experience of successfully working through the 2003 severe acute respiratory syndrome (SARS) epidemic. When SARS broke out, he was working at PwC and had recently been seconded to Beijing. He was in the middle of restructuring a big financial institution when part of the city was closed down and he and his colleagues weren’t able to work on site. “We had to rely on email, phone calls and fax,” recalls Chan, a Hong Kong Institute of CPAs member. These days, he is overseeing more than 20,000 people, a diverse talent pool, but he hasn’t forgotten the experience of SARS and believes that persistence and the trust of people – his own team and his clients – is what will get them through COVID-19. “I’m relatively more optimistic than some of our younger people who might not remember SARS. In terms of financial strength and technology, we are far, far ahead compared to 17 years ago, so we should be confident,” says Chan, who took up his current role at EY at the beginning of this year. The vast technological developments are not merely allowing people to work from home through COVID-19 but transforming the way accountants work and what they can offer. “In our audit procedures, we have adopted a globally developed software that embraces many audit elements. For example, in the sample testing process, we have a tool to help us pick the sample, which improves efficiency and allows our professionals to focus on the specific risk that could be associated with a particular item,” says Chan. “In our advisory services, we advise our clients how to best use technology to innovate their business models. We work with them to develop business scenarios, which is key for enabling different players in an ecosystem to map out their business strategies.” Chan noted as an example how big data can shed insights on the best approach to launch a wealth asset management product, where analysis can be done to accurately predict behaviours of target customers. Forward with fintech Chan speaks passionately about fintech. Hong Kong, he says, has three unique advantages that give it an edge as a fintech hub: its status as an international financial centre with a robust legal and regulatory regime; its access to a deep pool of capital, which is especially important for raising money for research and development (R&D); and a simple, straightforward tax system. “Hong Kong is part of China and the China market is huge. So, once we develop something or we have new offerings, we don’t need to worry about finding a market because we have a very big one behind us,” he says. For Chan, it’s something of a bugbear when people suggest that Hong Kong is lagging behind Mainland China in terms of fintech because the general population relies heavily on credit cards and the Octopus card, and hasn’t widely embraced mobile payment systems. “The adoption of fintech by Hong Kong and other mature markets is relatively low compared to developing or emerging markets such as Mainland China and India. Because we had very good alternatives, we developed gradually. It was not that long ago when many people in Mainland China did not have access to basic banking services, but through some very impressive technological advancements such as mobile payment, banking services have become much more accessible,” says Chan. R&D, he says, is essential to building a strong foundation in order to stay on top of this fast-evolving industry. To do that, Hong Kong needs to nurture local talent. “For local talent we should start early, bringing this element into secondary school curriculums and university courses.” Going green Another one of Chan’s passion projects is EY’s Climate Change and Sustainability Services, which he established in 2018 in EY’s Greater China Financial Services to provide financial institutions with green bond assurance, green finance advisory and other services. While climate change and other sustainability services are nothing new for EY as a group, it is new for Mainland China and the emerging markets, but they are catching up fast, he notes. “Mainland China has been ahead of the game in green finance development. Chinese issuers have been leading both on-shore and offshore green bonds and green notes issuance in the world in the last five years,” says Chan. Climate change and sustainability is high on EY’s agenda. Investors now want to know whether the projects they are investing in have a sustainability or green element. “It’s why I’m pushing for this very hard. We have been the leader in the green space for three or four consecutive years in terms of helping enterprises to issue green bonds and help them to run through the process,” says Chan. “I’m relatively more optimistic than some of our younger people who might not remember SARS. In terms of financial strength and technology, we are far, far ahead compared to 17 years ago, so we should be confident.” 10 March 2020
APLUS Jack Chan, an Institute member, oversees all business functions of EY Greater China region with 20,000 people in 29 offices. March 2020 11
LEADERSHIP PROFILE Jack Chan Ensuring GBA success Acknowledging the challenges posed by the recent protests in Hong Kong, Chan remains optimistic about the opportunities afforded to Hong Kong by the Greater Bay Area (GBA) development plan, an initiative that sees Hong Kong, Macau and nine cities in Guangdong’s Pearl River Delta create a mega-cluster. “If we can be more proactive and participate in this development plan, and focus on playing the vital role as the international financial, transportation and trade centres as well as the global offshore RMB business hub, I am confident that Hong Kong will continue to thrive in the whole game,” says Chan. He points to several factors that are essential to the success of the GBA – the free-f low of talent, capital and information. While there are challenges in each of the three, he sees progress. Currency controls mean that the free-f low of capital is still some way off, despite the situation having improved from a few years ago. The challenges around a free-f low of talent are more easily surmountable. “There are incentives that encourage Hong Kong people to work in the GBA where their tax payment will be equalized,” he says. As for the free-f low of information, that depends largely on the nature of information but progress has been observed, he adds. The experience of witnessing such rapid change in Mainland China has likely helped frame 12 March 2020
APLUS Chan’s upbeat perspective. Early on in his career, as a senior manager at Arthur Andersen, he travelled frequently to the Mainland and was involved with the country’s first wave of initial public offerings (IPOs). “It was a very exciting time. Back in 1993, I was involved in Hong Kong’s first batch of H-share listings. Those were the good old times,” says Chan. “When we told our clients we were auditors, they thought we were auditors from the government bureau, so they showed us a lot of respect.” It was the former Chinese leader Zhu Rongji who led the drive for Chinese companies to reform and get access to the capital market. The Big Six accounting firms were drafted in to manage the process. The Big Six is now the Big Four, and Mainland China has its own large accounting firms which, with the support of government, have become competitive. “That started about 10 years ago when the Ministry of Finance introduced audit rotation to encourage some of the big local firms to start trying to serve the big businesses and enterprises,” says Chan. While the Mainland firms have grown quickly, the Big Four still have the competitive advantage of having a global network and are still better perceived by investors, he says. Starting out After graduating in Professional Accountancy at the then Hong Kong Polytechnic in 1992, all the Big Six firms offered him a position. He chose Arthur Andersen for its great training package. When Arthur Andersen collapsed and merged with PwC in 2002, Chan was promoted to partner at PwC Hong Kong and Mainland China. He joined EY in 2006. Based in Hong Kong – with secondments to Chicago and Beijing – Chan has always focused on financial services. His experience has been wide-ranging, but it’s his previous dual role as EY’s Greater China Financial Services Leader and a member of the Greater China Region Leadership Team that he finds most rewarding. “Wearing this dual hat is a precious and memorable experience. It’s challenging working out how to bring people together and how to make the dialogue work,” he says. Success, he says, requires passion and dedication. Working with a diversified pool of talent keeps him engaged and pushes him to perform his best. For those starting out in accounting, he recommends cultivating a positive, open-minded outlook. “It’s a people business so we have to communicate with people all the time. If a person is too shy it would be very difficult,” says Chan. Always on Striking a work-life balance can be difficult to achieve in the “always on” culture of the profession. Chan says the boundaries between “work” and “life” are blurred, and that during high pressure periods he wakes up in the early hours of the morning, thinking about the day ahead. “I could work for 14 to 16 hours in terms of engagement, but whenever I have some time off, I spend it with the family,” says Chan, who has a daughter at university. When he’s not with his family, his leisure time is divided between his twin passions of football and horses. He enjoys watching the English Premier League matches and has been a Liverpool supporter for 40 years. He has even been to Anfield to watch his team play at their home stadium. His fascination for horses began when he was at secondary school and earning some extra money as a private tutor to a boy whose father was a race commentator. When the boy’s father came home, Chan would ask him for tips for a sure win. “He always joked with me, ‘The only tip for a sure win is to not bet.’ He taught me a lot – how to see the form of the horse, how to look in its eyes and tell if it was in a good mood or not,” remembers Chan. That early interest in horses became a lifelong passion, and he’s now part of a syndicate that buys racehorses. For Chan, the social side of the hobby is as much fun as the horse racing. “We can have a small gathering among friends,” he says. “Whether the horse will win or not we don’t know, but it’s a good excuse to get friends together and enjoy a whole afternoon or evening.” Chan established EY’s Climate Change and Sustainability Services in the Greater China region in 2018 to provide financial institutions with green bond assurance, green finance advisory and other services. Green finance has gathered momentum since the 2015 Paris Agreement on climate change. In September 2018, the Securities and Futures Commission announced its Strategic Framework for Green Finance. It sets out a five-pronged strategy which goes beyond Hong Kong’s current focus on green bonds and is aligned with global market and regulatory developments. March 2020 13
SECOND OPINIONS: DO PROFESSIONAL ACCOUNTANTS IN BUSINESS REALLY NEED TO BE EXPERTS IN DATA ANALYTICS? SECOND OPINIONS Technology VICTOR TAN CO-FOUNDER, INFINITY CUBE, AND AN INSTITUTE MEMBER In recent years, data analytics as a discipline has taken on a sophistication that suggests a complexity and a need for advanced skill sets that are largely inaccessible to ordinary people. Terminology and jargon such as big data, data mining, data cleansing, data visualization, algorithms, etc., add to the inaccessibility. Taken together, data analytics appear esoteric and limited to the initiated few. Stripping away all the jargon and the hype, data analytics is a basic and fundamental skill that everyone is capable of doing and exercising on a daily basis. It is a uniquely human ability to observe things around us and analyse them to come to a decision. For instance, window shoppers check the range of available products, prices, locations, etc. (data sets), compare and analyse the data sets, taking into account perhaps additional data sets such as brands, distance of the shops, transportation convenience and costs, etc. (data analysis), to arrive at a decision whether or not to buy and, if to buy, where to buy. The difference between data analytics at the daily level and the level at which it feels like rocket science is the wide and varied data sets that were not available previously. With cheap computing power, the level of data analytics possible has grown from the routine to the amazing. With the advances in computing technology, it has become easy to organize, structure and contextualize (data cleansing) these data sets, leading to raw data being turned into INFORMATION. Every accountant has a data analytics toolkit – one example of a tool in that toolkit is the “analytical review” procedure, i.e. the process of comparing changes in account balances from one period to another, or comparing related accounts. By training, accountants have developed a keen ability to derive insights simply by analysing financial accounts. To aid such analysis, accounts are presented in a columnar format showing one period’s results to the next. If an accountant has more than two periods of data, better insights can be derived. Even better insights can be derived if the accountant has data from other sources, e.g. from a competitor company (ideally after data cleansing to make comparison meaningful), and so on. As the data sets become wider and more varied, the insights from the analysis can become better, not just as a comparison between periods or related accounts, but also in terms of new patterns of insight that were not previously observable. The more tools in the accountants’ data analytics toolkit, the better equipped the accountant is to observe patterns in data that will prove valuable – and valuable here means the ability to support good decision making in business. Professional accountants in business (PAIBs) should be, at the very least, highly proficient in data analytics. PAIBs who are experts in data analytics will be worth their weight in gold to their employers and clients. 14 March 2020 “ Professional accountants in business should be, at the very least, highly proficient in data analytics.”
APLUS Finance and accounting teams are still dependent on spreadsheets. A survey conducted last year by KPMG and ACCA in Hong Kong finds that financial professionals spend about two-thirds of their time on descriptive and diagnostic analytics, and only a third predicting future trends. Many of today’s accountants are therefore still knee-deep in performing transactional duties, such as entering journals and tying out reconciliations. This manual crunching of information not only makes hunting for financial variances and anomalies challenging, but also potentially creates risk in spreadsheet-centric activity. Automating tasks and data analytics need to go hand in hand. With automation handling repetitive tasks, accountants’ roles have evolved to focus on conducting strategic research and analysis. Increasingly, businesses expect to obtain up-to-date reports to help inform critical decisions. This can only be done when they have greater visibility, control and transparency of their financial data. Additionally, investors today demand a more granular view of their portfolio companies’ financial data and how they are performing in near real-time, in order to take necessary steps, especially in light of the current uncertainties and new challenges. Audit analytics – Audit data analytics enables auditors to focus on what matters with immediate visuals on key indicators, period-onperiod variances, benchmarks against typical thresholds, comparisons and variances around business units, accounts, products, and processes. Less time is wasted on confirming the obvious and more time on assessing relevant transaction risks in real time. Benchmark analytics – Typically, companies compare finance and operating metrics, such as profit margin and return on assets, against same-industry and same-sized peers. Accounting benchmarking on the other hand, compares internal data with curated external data for comparative statements and provides insight into where the biggest margins are for improvement or rectification. Where necessary, businesses can adjust and manage performance targets – be it to accelerate change or improve processes. Financial analytics – As accounting teams increasingly see more business exposure, they are expected to play a greater role in supporting decision-making and take on an active role in financial analytics – interpreting the key performance indicators like revenue, expenses, and cash flow, which are critical for business decisions. Financial analytics will enable them to have insight into the company’s risk exposure with specific customers, whether capital and headcount investments are aligned with the right opportunities, or if the company has a good handle on revenue from new initiatives. KANE WU CO-FOUNDER AND CHIEF EXECUTIVE OFFICER, THINKCOL TRANSFORM LIMITED, AND AN INSTITUTE MEMBER TERRY SMAGH SENIOR VICE PRESIDENT, ASIA PACIFIC BLACKLINE In this day and age, it’s essential to equip oneself with more than one skill set. With skills in data analytics, accountants can better conduct their work with higher efficiency, predict and anticipate needs, and explore potential opportunities. Traditionally, accounting is deemed as a provider of historical information. The analysis of previous year data is undertaken to perform the audit or prepare the tax return. Given the amount of raw, historical data available to them, accountants have the necessary information to understand the uniqueness of a business and anticipate its key needs. Through identifying a pattern using historical data, accountants can use past indicators to develop foresight and advise businesses on the best course of action. Their hypothesis can be supported by the data and, therefore, better visualized. Throughout the years, there have been rapid advances in artificial intelligence (AI) and continuous advancements in computational power. No organization wants to be left behind. To reap the maximum benefits of converging the disciplines of accounting and data analytics, it’s essential to not only have both data scientists and accountants in an organization, but also accountants who have a basic understanding of data analytics. Many people who have never used data analytics techniques before fear data science. But in fact, most accountants already incorporate basic data analytics skills into their daily work, for example with the use of advanced Excel formulas. While others also utilize Excel macros as well. Incorporating data analytics tools is not as challenging as most people think. There is software available in the market that incorporates drag-and-drop tools to make it simple for professionals to quickly learn and use. For instance, instead of using Excel to manually plot numbers, data visualization tools such as Tableau can automate the task. Other data analytics software, such as KNIME, can transform maths and numbers. These tools help to visualize, summarize and reformat data so that counterintuitive insights are easily detected. Data analytics is essential to any industry as well as different levels of organization. My data science consultancy, ThinkCol, has witnessed the growth of many companies through promoting data analytics in the form of basic data science training for staff and the implementation of AI systems. Discovering the diamond in the rough may not be as difficult as it seems. It’s time for the accounting profession to further take charge of their data and encourage the appropriate use of data analytics tools. “ Data analytics is essential to any industry as well as different levels of organization.” “ Automating tasks and data analytics need to go hand in hand.” March 2020 15
TECHNOLOGY 5G Hong Kong’s blistering summers make heatstroke one of the most common causes of casualties in the city, and those particularly at risk are construction workers. A mobile operator is hoping to change that and improve their safety. In January, SmarTone launched a new solution called SmarTworks, which puts Internet of Things (IoT) sensors on safety helmets to track workers and monitor their biometrics. It monitors the hygiene, temperature and humidity of sites to ensure a healthier working environment. It also instantly alerts site supervisors if workers enter an unauthorized area, while it also sends out an emergency call if a worker suffers a sudden fall. The solution helps to improve site efficiency through locating workers, automating attendance record-keeping and assisting managers in the real-time allocation of resources. It does so thanks to the launch of fifth-generation wireless technology – 5G – in Hong Kong. The provision of 5G is set to usher in a new era of digital transformation, driving innovation, and enabling businesses to improve their operational efficiency, as well as creating new business models. Wilson Chow, Global TMT Industry Leader at PwC, explains that 5G has three main characteristics that make it a game changer in terms of technology enablement: speed, with a range of one to 10 gigabytes per second; efficiency, enabling far higher capacity and connectivity of devices and data-sharing in an energy-efficient way; and low latency, with delays of as little as one to five milliseconds, compared with a latency of up to 15 milliseconds with 4G. “These three major characteristics enable massive machine-to-machine communication and more reliable IoT communication,” he says. While the technology has already been launched in some markets, such as in Mainland China, South Korea and the United States, the pace of the rollout is set to accelerate this year, with GSMA Intelligence, an industry organization representing mobile operators worldwide, estimating that more than a fifth of the world’s markets will have launched 5G services by the end of 2020. The technology is expected to lead to US$13.2 trillion in global economic value being created by 2035, according to a January report on the impact of 5G by the World Economic Forum in collaboration with PwC. A new era for telecoms The Office of the Communications Authority auctioned off 200 MHz of 5G spectrum in the 3.5 GHz band to four mobile network operators in October 2019. SmarTone Mobile Communications Limited, Hong Kong Telecommunications Limited (HKT), Hutchison Telephone Company Limited and China Mobile Hong Kong Company Limited collectively paid just over HK$1 billion altogether in spectrum utilization fees. SmarTone plans to launch its first 5G services in the second quarter, with the service initially offered in places where there is a high population flow, such as commercial areas. It expects 80 percent coverage across Hong Kong by the end of this year. HKT is aiming to launch 5G services and plans in April. SUPER-CONNECTING HONG KONG Hong Kong will soon see the launch of fifthgeneration wireless technology (5G) services, prompting companies to plan out how to make the most of the higher speeds and lower latency to transform their business or expand their service offerings. Nicky Burridge finds out how companies should prepare for the changes 5G will bring Illustrations by Ester Zirilli 16 March 2020
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TECHNOLOGY 5G Hutchison’s mobile arm, 3 Hong Kong, expects to launch them on 1 April, with indoor coverage initially limited to certain shopping malls, Hong Kong International Airport and the Hong Kong Convention and Exhibition Centre. Outdoor coverage will be focused around the business districts of Central and Admiralty, and other high traffic areas including Causeway Bay, Tsim Sha Tsui, Mong Kong and Yau Ma Tei. Chow points out that because of the heavy capital investments mobile operators have made in the 5G network, they will need to explore new business models to cover these set-up and maintenance costs. As such, he thinks they will move on from business-tobusiness and business-to-consumer models to business-to-businessto-consumer ones, under which they will sell 5G services to other businesses, which will then sell them on to their own customers. “We have been seeing a lot of telecoms operators in Hong Kong designing their own IoT solutions and smart home solutions. Through mergers and acquisitions and partnerships, they are also working with technology companies and media companies to jointly capture new services and revenue opportunities from the 5G network,” he says. Operators are already looking to expand their coverage, as well as explore new offerings to capitalize on the new service, becoming full-service providers offering streaming and gaming services. “5G is not just about price and more data; it is about how we use the data, and the unique experiences and content that we can provide to our consumers,” says Susanna Hui, Group Managing Director at HKT. “While at this stage we cannot disclose details of the specific offers and our monetization models, on the consumer side, we will be working with our content media group to provide an extensive and unique content portfolio.” SmarTone, has teamed up with start-ups, including virtual car racing company Formula Square, to provide new content for customers, such as immersive virtual reality (VR) and high definition (HD) experiences, music streaming and new cloud gaming opportunities. It is also developing a range of solutions for enterprises, and alongside its construction offering, it has also trialled innovations in healthcare, including a 5G-connected ambulance that enables doctors to provide remote assistance to patients in moving vehicles, all of which are made possible by the increased connectivity of IoT that 5G enables. “In the digitalization era, more businesses in Hong Kong are proactively adopting different digital solutions not only to improve their business effectiveness and efficiency, but also to fulfil specific purposes, such as improving staff safety and well-being,” SmarTone’s spokesman says. 18 March 2020
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