HK$70.00 Special report: As partner to the CFO and other senior leadership, financial controllers are more than ever playing a key role in decision-making processes Issue 5 Volume 16 May 2020 DRIVING BUSINESS SUCCESS TAKING CONTROL PLUS: PROFILE Ken Siong, Senior Technical Director at the International Ethics Standards Board for Accountants ACCOUNTANT PLUS Keith Chan, Vice President and Chief Financial Officer of McDonald’s Hong Kong HOW TO How to coexist with the coronavirus
PRESIDENT’S MESSAGE APLUS May 2020 1 Slowly it feels as if we’re able to return to a level of normality. Although it is not quite the same as before, the loosening of social distancing restrictions in shops and restaurants and reopening of schools, gyms and beaches has allowed us to begin living again. I hope this continues, but we all must remain vigilant of our health, and take measures to protect the most vulnerable in society. The Hong Kong economy is under unprecedented pressure. Q1 2020 gross domestic product (GDP) contracted by 8.9 percent from the year before. The unemployment rate has increased by 1 percent to 5.2 percent in April. As this is a three-month rolling average rate, this means that for April alone the unemployment rate has gone up by a staggering 3 percent. The outlook for Q2 is still very gloomy, and the full fiscal year GDP forecast has been significantly adjusted downward to -4 to -7 percent. To preserve jobs and help businesses weather through the doldrums, the government this month announced the introduction of a number of measures through its Anti-epidemic Fund (AEF) and other ways to support the economy. Some of these also offer opportunities for our profession, both in taking advantage of the funding and also supporting the implementation of the schemes. The Institute’s COVID-19 – CPA Information Centre has a subpage on the schemes containing relevant information on the measures. I urge you to explore it. Implementation details for schemes under the AEF, including the Distance Business (D-Biz) Programme, and Catering Business (Social Distancing) Subsidy Scheme, were announced this month. Practising accountants have a role to play in these schemes by undertaking engagements to support applications for funding. Information about what is expected of them can also be found in the COVID-19 – CPA Information Centre. I hope members explore the government’s schemes for their own organizations. For instance, the D-Biz Programme offers HK$100,000 per project for up to three projects from 12 categories of IT solutions for developing distance business. The aim of the programme is to support enterprises to continue business and services during the epidemic. Members should consider whether they can take advantage of this and implement new technologies to support their success. Technology is integral to the future of accounting. The Employment Support Scheme (ESS), which provides time-limited financial support of up to HK$9,000 per paid employee per month to employers to retain their employees, could also be of interest to some members. The application for the first tranche of ESS for three months from June to August commenced on 25 May and will last for three weeks. One of the other major developments this month, which the Institute had been closely working on together with the relevant government departments, was the introduction of quarantine exemptions for some professionals with a need to travel to the Mainland, including practising members or employees of registered practice units who are required to travel to the Mainland to conduct audit work for companies listed in Hong Kong with Mainland operations. I’m pleased that this has been implemented as it will enable our members to carry out their vital tasks, and support Hong Kong’s position as a leading capital centre through enhancing trust in our listed companies. The Institute is the administration body for the scheme, and the relevant practices have been contacted about the application process. The Institute’s Small and Medium Practices (SMP) Committee has just introduced a new scheme for SMPs to ask questions and receive guidance on technical issues affecting their work. Members-Help-Members will hold quarterly sharing sessions to discuss the questions. Please feel free to ask questions and take part in the upcoming events. SMPs are the backbone of our profession, and I am glad that we are doing more to help them, particularly during these challenging times. Finally, at the end of the month, I took part in a panel organized by the Institute of Chartered Accountants in England and Wales. Although, as part of the new normal, it was held as a webinar not a physical event, it was still good to be able to talk about the developments in the profession and how the profession and the Institute have responded to the COVID-19 outbreak. The profession’s resilience and responsiveness continues to impress me, and that is a consequence of our individual actions. As we head into June, we are finalizing our financial planning for the next financial year. We endeavour to support our members at the dawn of this new normal. “ The profession’s resilience and responsiveness continues to impress me, and that is a consequence of our individual actions.” Johnson Kong President Dear members,
CONTENTS Issue 5 Volume 16 May 2020 NEWS 01 President’s message 04 Institute news 06 Business news FEATURES 08 Special report: Controllers of growth An in-depth look at the increasingly strategic and critical role of a financial controller 18 Second opinions What’s the best way to manage training needs? 20 Leadership: Ken Siong The Senior Technical Director at the International Ethics Standards Board for Accountants on how he is helping to elevate ethics 27 How to Tess Lyons, a marketing specialist, on how to coexist with COVID-19 29 Thought leadership: Stathis Gould and Laura Leka Reporting and fraud risks arising from the COVID-19 pandemic that accountants need to be alert to 31 Meet the speaker What to expect from an e-learning course focused on integrating ESG into business strategies 32 Accountant Plus: Keith Chan The Vice President and Chief Financial Officer of McDonald’s Hong Kong on digital transformation and the attraction of self-development SOURCE 38 Revised DIPN 39 raises controversies over an apparently inconsistent application of the source principles A look at the revised DIPN on the digital economy issued by the Inland Revenue Department 20 08 Special report: Controllers of growth Guiding the way Ken Siong, Senior Technical Director at the International Ethics Standards Board for Accountants, on raising the ethical bar for accountants in a complex world
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 Liana Cafolla 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 May 2020. Print run: 7,310 copies The digital version is distributed to all 45,711 members, 19,480 students of the Institute and 2,358 business stakeholders every month. 43 Enforcing ethical conduct of PAIBs Past disciplinary cases show the serious consequences of unethical conduct by accountants in business 44 TechWatch 211 WORK-LIFE BALANCE 46 Home truths Four Institute members share their work-from-home experiences 52 Young member of the month David Chan, Senior Economist at the Office of the Government Economist 54 Leisure Plus Spotlight on weekend activities; what members are currently reading and listening to 56 Let’s get fiscal Nury Vittachi is all about female empowerment 32 Life in the fast food lane Keith Chan, Vice President and Chief Financial Officer of McDonald’s Hong Kong, is in charge of the fast food giant’s digital transformation initiatives 54 46 Home truths Leisure Plus
NEWS As COVID-19 continues to disrupt lives, opportunistic criminals are using the disruption to exploit vulnerable and unwary members of the public. This means that everyone, including members, needs to be more alert than ever to the risk of fraud. To help people to identify and avoid commonly seen deceptions and frauds, the Institute’s Forensics Interest Group Management Committee has released a new simple guide, Combatting Fraud, available on the Institute’s website. Exemption from compulsory quarantine arrangement CPAs (practising), partners, directors or employees of registered practice units who are required to travel to the Mainland to conduct audit work for companies listed in Hong Kong with Mainland operations may apply for exemption from the compulsory quarantine arrangement. The Institute is providing administrative support for the scheme, and has sent public interest entity auditors an email, information paper and forms for their completion, available through the Institute’s COVID-19 – CPA Information Centre webpage. HKICPA career portal launched The Institute launched a new career portal, connecting university students interested in joining the profession with accounting firms. The portal also features career and job hunting advice, the latest updates on the accounting profession, and insightful videos. Technical enquiry service for SMPs launched The Institute’s Small and Medium Practices Committee launched MembersHelp-Members (M-H-M), a new technical enquiry service for small- and mediumsized practices (SMPs) who wish to obtain guidance and comments on technical issues from their peers. Any enquiry submitted to M-H-M will be considered by the committee’s Working Group on Technical Issues on a pro-bono basis and may be addressed at a sharing session. Sharing sessions will be organized on a quarterly basis. SMPs can submit a technical enquiry to M-H-M through an online enquiry form. Those who have questions regarding the initiative can send an email to ms@hkicpa.org.hk. Council meeting minutes The abridged minutes from the April Council meeting are now available for members to read. They can be found in the “Members' area” of the Institute’s website. Institute’s newsletters revamped The Institute’s newsletters and email templates have been updated to better connect with and inform members, students and other stakeholders. The e-circular, TechWatch, CPD Planner and Lifestyle emails have been replaced with newly designed and themed newsletters. There is also a new monthly newsletter called “CPA Pulse,” which presents the latest news and happenings. The Institute will collect feedback in the future to use for further enhancements. Institute news Business news New guidance from the Forensics Interest Group Management Committee on commonly seen frauds Hong Kong Institute of CPAs Combatting fraud A simple guide to avoiding deception during a pandemic Resolutions by Agreement Lam Pik Wah, CPA (practising), Yeung Kit Kam, Lesley, CPA (practising) and BDO Limited Complaint: Failure or neglect by Lam and BDO to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 230 Audit Documentation, HKSA 500 Audit Evidence and HKSA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures. Failure or neglect by Yeung to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements. BDO audited the consolidated financial statements of China Energy Development Holdings Limited, a Hong Kong listed company, and its subsidiaries (collectively, group) for the year ended 31 December 2013 and expressed an unmodified auditor’s opinion. Lam was the engagement director and Yeung was the engagement quality control reviewer (EQCR). The group acquired a subsidiary in Mainland China which had entered into a project for exploration, development and production of oil and natural gas in the Mainland. Approval to begin development of the project had not been obtained from the Chinese government. However, the group’s interest in the project and the exploration costs incurred were recognized as assets in the financial statements. 4 May 2020
APLUS The audit team engaged an independent valuer to assess the valuation of the project that had been undertaken by management. The working papers showed that the audit team did not perform adequate procedures, or prepare adequate documentation, in respect of assessing the independent valuer’s and management’s assumptions on forecast production and sales volumes, expected selling price of products and discount and risk premium rates used in the valuation. 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. Each of the respondents pay an administrative penalty of HK$25,000 and they jointly pay costs of the Institute and the Financial Reporting Council totalling HK$172,537.50. Fok Joyce Sing Yan, CPA (practising) Complaint: Failure or neglect to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements. Fok was the EQCR in the audit of the consolidated financial statements of Ceneric (Holdings) Limited (now known as TFG International Group Limited), a Hong Kong listed company, and its subsidiaries (collectively, group) for the year ended 31 December 2014 undertaken by a corporate practice that has now been deregistered. The group entered into a very substantial acquisition during the year, and the assets acquired included a hotel in Mainland China of which the right to operate, manage and maintain had been granted to a hotel management company. The audit engagement team failed to appropriately assess the audit risks associated with the transaction and hence the planned audit procedures were inadequate to address the risks of material misstatement in respect of the acquisition. Consequently, the audit engagement team failed to properly evaluate the fair values of the assets acquired. They also failed to identify the non-compliance with accounting requirements in relation to the gain on bargain purchase and the erroneous classification of the hotel. Those areas were material and involved significant judgements. As EQCR, Fok failed to properly perform an objective evaluation of the significant judgements made by the audit engagement team and the conclusions reached in formulating the auditor’s report. Regulatory action: In lieu of further proceedings, the Council concluded the following action should resolve the complaint: 1. Fok acknowledge the facts of the case and her non-compliance with professional standards; 2. Fok be reprimanded; and 3. Fok pay an administrative penalty of HK$50,000 and costs of the Institute and the Financial Reporting Council totalling HK$50,403. Disciplinary finding Lo Hung Yan, CPA (practising) Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principles of integrity, and professional competence and due care in sections 100.5(a), 100.5(c), 110.2 and 130.1 of the Code of Ethics for Professional Accountants; Hong Kong Standard on Assurance Engagements 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information and Related Conforming Amendments; HKSA 500 Audit Evidence, HKSA 600 Special Consideration – Audits of Group Financial Statements (Including theWork of Component Auditors), HKSA 700 Forming an Opinion and Reporting on Financial Statements; and Hong Kong Standard on Quality Control 1 Quality Control for Firms that PerformAudits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements. The Institute concluded a practice review on Antonio & Clayton CPA Limited. Lo was the former managing director of the practice and responsible for its quality control system. The practice review found that Lo colluded with a client to backdate an auditor’s report in order to mislead the Inland Revenue Department into believing that a valid auditor’s report existed on the audit report date, even though the audit had not been completed. The practice review also revealed multiple deficiencies in the assurance and audit engagements carried out on an insurance broker and two other private companies. Those deficiencies demonstrated that Lo failed to ensure the practice had established and maintained a quality control system. They also cast serious doubts on Lo’s ability to maintain the level of professional competence and due care expected of him to ensure his clients received competent professional service. Decisions and reasons: The Disciplinary Committee reprimanded Lo and ordered the cancellation of his practising certificate, with no issuance of a practising certificate to him for 24months, with effect from20May 2020. In addition, Lo was ordered to pay a penalty of HK$70,000 and costs of disciplinary proceedings of HK$67,776. Details of the Resolutions by Agreement and disciplinary finding are available at the Institute’s website. May 2020 5
NEWS Business U.S. PASSES BILL THAT COULD DELIST SOME CHINESE COMPANIES The United States senate passed a bill that could block some Mainland Chinese companies from selling shares on American stock exchanges, and would require overseas companies to followU.S. standards for audits. The new bill requires publicly traded companies to reveal whether they are owned or controlled by foreign governments, and require them to submit audits to the Public Company Accounting Oversight Board. While the bill applies to any non-U.S. company, observers say it is targeted at China. The measure has to be passed by the House of Representatives before being signed into law by President Donald Trump. It comes as U.S.-China tensions increase over the coronavirus pandemic. Media reports suggested the bill could lead to more fundraising applications towards Hong Kong, helping the city overtake NewYork as the global hub for initial public offerings. CHARLES LI TO STEP DOWN AS HKEX CHIEF Hong Kong Exchanges and Clearing Limited (HKEX) announced in early May that Charles Li will step down as its chief executive and will not seek reappointment when his current term expires in October 2021. Li will continue to lead the exchange while a selection committee headed by HKEX Chairwoman Laura Cha looks for a successor, and may leave earlier if a replacement is found sooner, according to the filing. Since Li was hired to head HKEX in January 2010, the exchange’s market capitalization has doubled to HK$35 trillion, as of 1 May, and Hong Kong has been the largest initial public offering market in the world seven times in the past 11 years. The International Integrated Reporting Council (IIRC) kickstarted its 90-day consultation on 21 May, calling for feedback on a new consultation draft proposing revisions to the International Integrated Reporting (<IR>) Framework. The IIRC called on stakeholders to share their thoughts on the consultation draft through an online survey and via participation in one of over 20 virtual roundtables hosted by the IIRC’s partners globally. The Institute will be a co-host of one in Hong Kong. The revision is the first since the <IR> Framework’s initial publication in December 2013. “The <IR> Framework Panel was unanimous in its voice to continue the revision process. If anything, the importance of integrated thinking has been further underlined by this pandemic,” said Chair of the <IR> Framework Panel, Erik Breen. The feedback will be used to inform a revised International <IR> Framework which will be published in December. IIRC OPENS CONSULTATION ON REVISIONS TO THE INTERNATIONAL <IR> FRAMEWORK EY in the United Kingdom announced a shake-up of its leadership team, splitting responsibility for audit and assurance under two separate heads, as part of its efforts to improve quality following sustained criticism of the accounting profession. EY said it would split the roles governing its audit and assurance practice in “recognition of the societal importance of these functions and to ensure that audit quality continues to receive dedicated focus.” Andrew Walton, who has been an EY partner for 15 years, will become the new head of audit in the U.K. and join its board of directors, and Kath Barrow will lead the assurance practice. The move to split the audit and assurance roles comes in response to claims of conf licts of interest in the profession. EY is under investigation by regulators over its audit work for failed travel operator Thomas Cook. Hong Kong’s Secretary for Commerce and Economic Development Edward Yau has warned the city’s economy could continue to suffer in the second quarter of the year, the South ChinaMorning Post reported. “The second quarter will not be any better than the first quarter because the trend has been set and we’re still suffering…so I don’t see much light at this point,” Yau told the SCMP. The city’s battered economy suffered its worst decline on record, shrinking 8.9 percent in a preliminary estimate year-on-year in the first quarter. It is worse than the low point of 8.3 percent in the third quarter of 1998, during the Asian financial crisis. 8.9% HONG KONG ECONOMY SHRINKS RECORD IN FIRST QUARTER EY U.K. TO SPLIT OUT AUDIT GOVERNANCE 6 May 2020
APLUS Shares of Bossini doubled on 21 May, following news of Chinese gymnastics star Li Ning offering to buy a majority stake in the company. Hong Kong-listed shares of Bossini rose by 99 percent to close at HK$0.5. A joint venture controlled by Viva China, a sports talent agency founded by Li, said it will buy 1.09 billion shares in Bossini, paying HK$46.6 million for 66.6 percent of Bossini’s issued capital. Li’s sportswear brand, Li Ning, is currently China’s second-largest sportswear maker by market share. Meanwhile, Bossini, which operates 39 stores in Hong Kong and Macau, and 180 in Mainland China, has seen its performance deteriorate in recent years as it failed to adapt in an increasingly competitive consumer market. LI NING’S MAJORITY STAKE BID DOUBLES BOSSINI’S SHARE PRICE HEAD OF U.K. ACCOUNTING WATCHDOG LEAVES POST The Financial Reporting Council (FRC) in the United Kingdom announced that its Chairman, Simon Dingemans, will leave the accounting watchdog just eight months after taking up the post. He will leave at the end of May and return to a full-time role in the private sector. His decision came as he was being prevented from taking on additional roles that may have conflicted with his duties at the FRC, a spokeswoman said. According to the Financial Times, Dingemans was making progress in strengthening the FRC’s powers and resources and in restoring its reputation after a string of accounting scandals led to questions about its effectiveness in policing the U.K.’s Big Four firms. “We were pleased when Simon was appointed and, just at a time when the FRC is beginning to make real progress, this is clearly a setback,” Michael Izza, Chief Executive of the Institute of Chartered Accountants in England andWales, said. “We would hope the FRC will be able to appoint someone of equal stature in the near future.” M&A ACTIVITY IN GLOBAL TRANSPORT AND LOGISTICS INDUSTRY SHOWS A REBOUND IN 2019 PwC’s analysis of global merger and acquisition (M&A) activity in the transport and logistics industry shows a rebound in 2019. There were 254 deals, a 12 percent increase from the previous year. Meanwhile, the total deal value of US$143.3 billion exceeded 2018 by 23 percent. There were 29 megadeals in 2019 with a total deal value of approximately US$92.1 billion, compared with 21 megadeals announced in 2018, for a total of US$69.6 billion. The largest deal this year, where financial investor Blackstone acquired urban warehouse assets from global investment manager GLP in the United States, had a transaction value of US$18.7 billion. As organizers cancel and postpone events due to COVID-19, and with some events not being rescheduled, Eventbrite has been hit by an accounting challenge. The company, which provides ticketing services mainly for events, had to make additional forecasts on future refunds in order to prepare for forthcoming revenue losses from the rise in refunds for cancelled shows, reported The Wall Street Journal in May. “It was easy to figure out what the actual refunded ticket fees were in the quarter,” Eventbrite Chief Financial Officer Charles “Lanny” Baker said. “What took more judgement from an accounting and finance perspective was estimating the future rate of refunds.” The company’s finance team looked at all tickets for events that haven’t happened or haven’t been canceled to determine an estimate of refunds over the coming months, Baker told The WSJ. UNCERTAINTY BRINGS ACCOUNTING CHALLENGES FOR EVENT-TICKETING CFO Beijing-based Luckin Coffee received a notice fromNasdaq on 15May that it was being delisted from the stock exchange. According to the coffee chain, which was founded in 2017, Nasdaq cited “public interest concerns” following the company’s recent accounting scandal, and “past failure to publicly disclose material information” as the two key reasons it is being delisted. After an internal investigation in April, the company revealed that much of its 2019 sales of about 2.2 billion yuan (US$310.77 million) were fabricated by its chief operating officer, Jian Liu, and other employees. Luckin has since fired both Liu and company founder and chief executive officer Jenny Qian. The company plans to appeal Nasdaq’s decision and says it will remain listed while pending an outcome of its request. Luckin, known as a major rival to Starbucks, joined Nasdaq in 2019 through a US$600 million initial public offering. LUCKIN COFFEE DELISTED BY NASDAQ Samsung Electronics Co. Vice Chairman Jay Y. Lee was summoned in late May by prosecutors in South Korea who have been investigating alleged accounting fraud. The development is the latest cloud of a storm that has overshadowed the country’s largest company for several years, which previously brought accusations of graft payments to the government, accounting malpractice and union-busting. The latest probe by the prosecutor’s office is part of a separate investigation into whether there was foul play during a merger between Samsung C&T Corp. and Cheil Industries, which many observers say is the conglomerate’s de-facto holding company. Lee is effectively Samsung’s heir apparent, since his father's heart attack in 2014. He previously served about a year of a five-year sentence for bribery and embezzlement. SAMSUNG HEIR IN ACCOUNTING FRAUD PROBE May 2020 7
SPECIALISMS Financial controllership Now more than ever, the line between financial controller and chief financial officer is blurring. Financial controllers are now seen as trusted advisors and business partners who have the unique expertise to guide a company towards growth. Jeremy Chan finds out how they are playing a more important role in the decision-making process, the skills they need to enhance to provide actionable insights across the company, and how they are keeping their finger on the pulse of a business Illustrations by Gianfranco Bonadies 8 May 2020
APLUS SPECIAL REPORT: CONTROLLERS OF GROWTH May 2020 9
SPECIALISMS Financial controllership Anthony Lin had no idea just how engaging yet challenging being an FC would be – until taking on the role. “It is a role that has kept on evolving since day one,” says Lin, Financial Controller, Business Development, of Gammon Construction Limited and a member of the Hong Kong Institute of CPAs. When he joined the company, Lin thought he was going to be taking care of the company’s books and records and performing market research on his own. Instead, he finds himself partnering up with the CFO to complete a variety of tasks. “As an FC, I do find myself making more recommendations in the decision-making process,” he says. “For example, I advise the CFO on how to save on costs, and on what key performance indicators (KPIs) to set up to measure the performance of our team. I’m responsible for explaining the story behind the numbers.” Lin is among the majority of FCs who have recently experienced a focus shift in their role. According to the 2019 study Understanding The Modern Controller by market researcher Dimensional Research, 90 percent of those surveyed noted AN EXTRA PAIR OF EYES “In a company, an FC is the one who connects well with the numbers. So we are in a unique position to help management make the right business decisions.” Every company needs a financial controller (FC). Traditionally seen as the lead accountant of any financial department, FCs play a key role in ensuring that a company’s ledgers and financial statements reflect the true nature of cash flow in the organization. Their day-to-day puts them in charge of a myriad of duties – from the proper implementation of internal controls, completion of monthly statements, budgeting and forecasting, assisting with tax compliance and evaluation of a company’s financial health. Most FCs report to the chief financial officer (CFO) and work closely with management to make key decisions in running and maintaining the business. In smaller companies, they are viewed as the CFO, while in larger companies, they serve as the bridge between the senior management and finance department. Over the last decade, the role has seen significant changes, with FCs playing a more fundamental role in their companies. Though key decisions are still made by the CFO, FCs are increasingly sought after in the decision-making process. It is a role that now demands an even more diverse skill set, a broad business perspective and a highly refined expertise to drive change within any company. This special report looks at the various factors shaping what it means to be a functional and successful FC today. It looks at how FCs working across different industries adapt to rapid – and often disruptive – market changes, and add value to their company. It also highlights the increasing number of risks FCs need to mitigate, the reasons why they are more involved in strategic planning, how FCs can maintain their relevance, and what is needed for them to ultimately become a CFO. 10 May 2020
APLUS that FCs are spending more time on strategic planning than in the past. The study surveyed 306 accounting and finance professionals, including 202 FCs, and found that factors such as fast-evolving technologies, increased scrutiny on financial reporting, compliance requirements, less tolerance for errors and the general need to perform quicker, has upended the role and also added to the pressure of being an FC. Almost a third of those surveyed noted that their role has changed as a result of the CFO taking on a more strategic role, especially within the last decade. Data from a 2013 study, Evolving Role of the Controller, conducted by The Association of Accountants and Financial Professionals in Business, suggests that because CFOs are also taking on more important roles, they consider FCs to be their first port of call. Lin is in charge of helping the company, a Hong Kong construction and engineering contractor, to expand into new international markets. “I help them to perform the evaluations, financials and calculations behind the scenes,” he says. In a recent task, Lin says he had to advise the CFO on whether to expand their operations into a new location, and if it would bring long-term growth to the company. “Simply presenting information to a CFO doesn’t help at all,” explains Lin. “I needed to identify whether expansion would be a feasible solution by performing extensive market and geographical research. Based on the research I performed on the country’s economics, policies and the numbers, I determined that it wasn’t the best idea to expand into that particular market at that point in time. This was one case I felt I helped the most.” To save time, a CFO might walk up to ask an FC for advice instead of looking at financial figures, says Lin. “In a company, an FC is the one who connects well with the numbers. So we are in a unique position to help management make the right business decisions. We must be ready,” he says. Part of the reason why FCs are playing a more important role in the decision-making process is the changing role of the CFO. “CFOs are taking on more responsibilities and often work directly with the chief executive officer (CEO) and also the board to execute business strategies,” Lin adds. “So, because the role of a CFO may have changed, the people working alongside the CFO have had to change too. We don’t just interpret the accounting standards, we need to be critical thinkers and provide a value-added service in order to meet the requirements of the CFO, board and stakeholders.” Jonathan Chow, CFO of Yuk Wing Group Holdings Limited and an Institute member, agrees. As a CFO of a listed company that manufactures and sells industrial machinery, Chow says he has been busier than usual and needs to rely on the expertise of his FC. But he cautions that instead of merely shouldering the work of a CFO, it is crucial that both the FC and CFO work well together. “It is less about the CFO giving the FC orders, and more about working effectively alongside the FC as a team to resolve issues,” he explains. “In a way, an FC is now a CFO’s extra pair of eyes.” Chow notes how his FC’s more detailed approach in analysis complements his skill of looking at the bigger picture. “I was recently involved in the assessment of revised financial reporting standard, Hong Kong Financial Reporting Standard 16 Leases,” he says. “The FC at my company focuses on things from a more micro point of view, so she might look through the terms and details of each lease contract and calculate the financial implications. I would then review them on a more macro basis to determine whether it is reasonable or if there’s anything that requires further discussion.” CONSCIOUS COMMUNICATION FCs must have effective communication skills to succeed not just in working with management but across the company. “For example, they need to think about how they are going to explain a change in accounting rules to management or someone without a background in finance or accounting. This is probably one of the most challenging aspects facing FCs right now,” says Chow. Lin agrees, noting how inadequate soft skills could be the difference between an ineffective FC and one who makes a noticeable impact on the company. “FCs can’t expect everyone to understand terms such as accounts payable and receivable or return on investment. They need to try to speak in each person’s language,” he says, adding how FCs should aim to serve as a bridge between the numbers and the business. “There are a lot of finance professionals – even seniors – who focus too much on the technical aspects of the role such as understanding accounting rules, standards and valuations, but aren’t able to add value to the business simply because they lack the soft skills. If we don’t May 2020 11
SPECIALISMS Financial controllership have those skills, this results in miscommunication and prevents us from providing that value-added service we are capable of.” Howard Cheung, Financial Controller, International Business, of CK Infrastructure Holdings Limited and an Institute member, says he improved his communication and people skills by taking leadership training courses in his spare time – ones which he would rely on in his career. As the FC of Hong Kong’s largest publicly listed infrastructure company, Cheung needs to work closely with the business CFO and also with the group FC. As he now frequently uses strong communication skills to work with the CFO in decision-making processes and in drafting proposals alongside the board, Cheung, like many FCs, is seeing his role develop into a mini-CFO. “I attend many board and committee meetings regarding our overseas business, and often have to attend meetings on behalf of my boss as well,” he says. Cheung touches on the importance of brevity during meetings. “I’ve had to learn to be more concise, especially during board meetings which can sometimes stretch up to two hours,” Cheung explains. “There could sometimes be 30 items on the agenda so you have to be careful with your words and be accurate when presenting. The board members might not be as close to the numbers as you think.” Chow advises how FCs can stay succinct during meetings with the board. “It’s important to have meetings conducted and have your message delivered in the most efficient manner. You don’t want to drag a meeting on for two to three hours with a busy CEO,” he says. “CEOs are more focused on risks. If you have five risks you want to speak on, start by listing them out in point form. Say two of them are more important and you need more time to discuss them – focus on those two points during the meeting and elaborate on those points. If they’re interested, they’ll ask more questions.” FCs are usually the principle point of contact for external auditors, and are also relied on to communicate closely with tax accountants, bankers and lawyers to provide key information on the company. “As FCs, we are expected to have a firm grasp on the company’s operations, so we work closely with our auditors in helping them to understand our operations and development,” says Vince Law, Financial Controller of Sappi Trading Hong Kong Limited and an Institute member. “Our knowledge of the business and issues that lie in our operations help us to translate this into an analysis for our auditors and our senior management.” Law also frequently communicates with lawyers when it comes to drafting agreements or contracts for their customers. She adds that though FCs aren’t expected to be legal professionals themselves, they need to know how to understand lawyers and raise questions for discussion. “If you have basic legal knowledge too, that’s also helpful,” she says. Sydney Chan, Financial Controller at Asia Grocery 12 May 2020
APLUS Financial innovators There is a growing need for FCs to have software competency in order to innovate and improve workflows within companies. Understanding The Modern Controller, a 2019 study by market researcher Dimensional Research, found that 78 percent of FCs have been dedicating more time to IT management within the last 10 years. Almost all respondents from the study noted how technology such as enterprise resource planning (ERP), cloud accounting and financial reporting software has assisted them in the decision-making process, with 91 percent citing how it increased the quality of financial statements and freed up time to take on other tasks. With more data to work with, technologies such as robotic process automation (RPA) and dashboard-based software can help companies to save time, streamline processes and track progress in real time. Anthony Lin, Financial Controller, Business Development, of Gammon Construction Limited, notes how FCs can also do their part in introducing these technologies to the business. “FCs are nowworking in an ever-changing environment,” he says. “Technology around them is changing, so they have to understand it, be on top of it, and know how to use it to add value to a company.” Lin has used his IT expertise to introduce new software to the company and automate processes. Having studied computer science in university, his knowledge of software and IT processes led him to make changes first within the finance department, such as by implementing RPA tools into their systems. “Since then, we’ve been able to automate more tedious processes within the finance department such as invoice matching and reconciliations. We also use optical character recognition tools,” he says. He also introduced data visualization software Tableau, a dashboard-based software capable of analysing data and reports. “Data within the software is neatly illustrated in graphs and charts.” Lin says the software helps to neatly illustrate data in graphs and charts, adding how the colourful charts have proven useful in presenting data during meetings. The tool also helps Lin in performing financial reporting. “Financial reporting measures the heartbeat of the entire operation,” he says. In preparing financial statements, Lin says the management tends to look at information such as cash flow, profit performance, trends over different periods and whether there are signs of financial distress. He makes use of the software to highlight key information to board members. “We can use those key performance indicators (KPIs) and create an individual dashboard for different teams and divisions,” he says. “If people want to drill down to details, they can click on each of these figures and trace the source.” Beyond the finance department, Lin has also assisted other departments within the company in implementing and utilizing this tool. “Now other departments are using it to look at KPIs for factors such as safety measures, building progress and cost improvement initiatives.” Distribution Limited and an Institute member, frequently liaises with legal advisors. “For example, if we want to sign or terminate certain contracts, including but not limited to sales contracts, rental contracts and employment contracts, I need to determine whether it will trigger any legal consequences,” she says. Her legal knowledge is also relied upon by her management. “The board frequently consults me on subjects such as Listing Rules, contract laws, the Employment Ordinance or matters concerning the new government policies and subsidies for companies. I have to provide advice on these,” she says. “FCs aren’t only involved in issues concerning the numbers anymore. It isn’t common for most companies to have a legal department, so the board sees me as an accountant and their legal advisor.” FCs also need the soft skills to effectively and accurately explain financial reports to external parties, says Cheung, adding how financial reports are also closely monitored by members of the company’s management. “In addition to looking at profit and loss, the management focuses on the cash f low and balance sheet to understand the company’s capital management, liquidity, and its commitments and performance trends and benchmarking with industry peers.” As a result, he urges FCs to make sure financial reports benefit both management and external parties. “As FCs, we need to ensure financial reports are prepared and in compliance with accounting standards and regulatory requirements. We should also interpret implications to the business and put forward our opinions on how to drive business and to impact our financial results,” he says. STRATEGIC PLANNING With FCs involved in more key decisions, they need to rely on their skills to develop financial strategies for a company and reduce risks, as knowledge in this area enables FCs to help companies plan for the future. By analysing a company’s past figures, they are able to perform financial projections, allowing them to adjust budgets accordingly and recommend suitable changes to the management team. These changes could ensure that a company’s operations keep running, especially amid challenging business or market conditions. “To be an FC, knowledge in strategic finance is an essential element,” says Lin at Gammon. As an FC working in the construction industry, he oversees thousands of employees working on construction sites locally and internationally. One challenge is making sure each employee is compensated on time. “In my company, knowledge and experience in capital planning and cash flowmanagement is key.” Inadequate capital planning, Lin notes, can lead to liquidity risks, and as a result, reputational risks. “For example, if we aren’t able to pay our employees or staff, the company will make headline news, and not in a good way,” he says. BettyWong, Financial Controller at Blue Cross (Asia Pacific) Insurance Limited and an Institute member, works closely with the CFO in treasury management and frequently makes recommendations for investments. Wong notes how she assisted the CFO in arranging collateralized repo loans with investment banks, or repos, to enhance investment yields for the insurance company. Repos are secured loans in which one party sells tradable financial assets, or securities, to another party and agrees to repurchase May 2020 13
SPECIALISMS Financial controllership “We are no longer just in charge of tasks such as financial reporting. We are more actively involved in the strategic and tax planning.” MANAGING RISKS FCs are increasingly involved in helping companies to minimize risks – a task traditionally taken on by the CFO. In fact, 64 percent of CFOs indicate that their company’s risk management team reports directly to them, according to 2017 study The Role of the CFO by McKinsey & Company. With FCs working closer or even directly with CFOs, they are relied upon to manage various risks such as credit, operational, liquidity and reputational risks. Nowadays, FCs also face the added pressure of mitigating cybersecurity risks. “Because FCs are part of the finance team, we are in charge of holding sensitive financial information,” Lin at Gammon explains. “If this information is disclosed or leaked to an outside party, we are most liable. The senior management will come looking for us first.” To prevent this from happening, Lin says FCs need to strategize closely with their company’s risk management team or IT department. For example, Lin has meetings with the IT department every two weeks to discuss informational security risks to make sure their data is properly managed and protected. “FCs need to challenge the IT department to determine what to upload, what not to upload, and which cloud solution is safe to adopt.” Cheung at CK Infrastructure agrees that cyber risks such as phishing e-mails are posing a challenge for modern-day FCs. “Now, we have to worry about cyber fraud, email leaks and hacks, as well as enterprise resource planning systems being breached,” he says. Cheung recalls the repercussions of having one email leak while working in his previous role. “I remember sending an important email to the CEO at the time. In just one day, due to an issue in our systems, crucial information from that email leaked into the media and even into the market. It’s was a huge issue for our headquarters to manage.” Cheung admits this issue could have been avoided had there been better internal controls put in place. “This is something FCs need to watch out for,” he adds. “Usually, those securities later, with the securities serving as collateral. “The insurance company was looking into investment opportunities and the CFO recommended this yield enhancement arrangement,” Wong says. “This was a very challenging initiative for me at the time. I had to read through a large amount of documents and arrange the custodian bank for investment execution on a tight timeline. I was in charge of the investment compliance, initiation with the fund manager in addition to the accounting. Ultimately, we achieved this investment objective within a low interest rate environment.” Chan at Asia Grocery Distribution Limited adds how she pinpointed alternative forms of revenue to help her company, which was affected by the COVID19 pandemic. The listed company Chan works for distributes food and kitchen products to restaurants, hotels, private clubs and wholesalers. “Our main business lies in the distribution of grocery and food products, and the demand for those products has decreased as a result of bad business of our customers or even business closures,” she says. But instead of waiting for the situation to improve, Chan thought of new ways. “By projecting our gross profit the following month, I performed extra budgeting and recommended ways to cut costs,” she explains. Chan suggested the company postpone its expansion plans and also worked closely with the operations team to shift their focus to selling a now popular product – face masks. “During the past few months, we’ve turned to selling face masks and cleaning products to our customers. We’ve sold face masks before, but there wasn’t much emphasis up until now,” she says. Law at Sappi Trading joined her company as an accountant in late 2000, becoming a local FC in 2002 and then taking on her current role in 2013. She is responsible for financial activities such as tax planning, group restructuring and the financial and annual reporting of her group, which is headquartered in Hong Kong and has offices in the United States, Latin America, Australia and Africa. Lawworks closely with the CFO in business development and heavily relies on her tax expertise to help the company’s growth. “FCs are playing an even bigger part in business development,” she says. “We are no longer just in charge of tasks such as financial reporting. We are more actively involved in the strategic and tax planning,” she says. She explains how knowledge in tax, especially across different jurisdictions, helps FCs like herself to provide valuable input. She uses her knowledge to make recommendations in working with the sales managers, the CFO, or members of the executive committee. “I also have to make sure we meet all statutory and commercial requirements. This is my main area of responsibility,” Law says. 14 May 2020
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