Issue 7 Volume 16 July 2020 DRIVING BUSINESS SUCCESS THE WAY TO BUILDING TRUST PLUS: COMBATTING FRAUD A roundtable discussion on fraud during a pandemic PROFILE Dr Daniel Yip, Chairman of the Federation of Hong Kong Industries SECOND OPINIONS How can “growth mindsets” help one go beyond and shape the future The Institute’s new strategic plan sets out its mission to build trust in the profession and keep members relevant for the future HK$70.00
PRESIDENT’S MESSAGE APLUS July 2020 1 Hong Kong is facing its most serious outbreak of COVID-19 cases. While it can be difficult to return to lockdown conditions, we must all do our bit to stem this outbreak, protect our health and our vital healthcare resources. Remember that although we should practise social distancing, staying in contact with family and friends is important for our mental well-being. A phone call or an instant message can go a long way. Let’s get through this new challenge together. The pandemic has delayed a lot of events and new initiatives we had planned for the year. Nonetheless I’m pleased that we released the Strategic Plan 2020-2022 last month, which details how we will build trust in our profession and prepare for the future. I was interviewed this month alongside the Institute’s Chief Executive Margaret Chan about the plan, and you can find the article on page 8. We also filmed a video introduction to the plan, which will be available soon. One of the strategic plan’s objectives is for our services and support to be recognized as meeting the needs of members and students. To increase our engagement with members in the public sector, early in the month we held separate and focused outreach sessions with the Inland Revenue Department, Treasury, and Audit Commission. During the meetings, we discussed the role of the Institute and our activities and took questions from attendees. Plans are being developed to set up an interest group for our members in the public sector, to address their specific needs, support them in their career development and offer them networking opportunities. This month, we also met virtually with the Financial Services Development Council (FSDC) to discuss ways that we could work together in developing Hong Kong’s financial services industry and promote Hong Kong internationally. Working with organizations like the FSDC is one way we can advocate for our profession, and strengthen our city’s leading role as an international financial centre. During the meeting, we discussed areas of mutual interest and ways to collaborate together in the future. The FSDC will soon have one of our Council’s government-appointed lay members, Dr Au King Lun, as its Executive Director, which will help to strengthen our relationship. I look forward to the two bodies working closely together. You may have recently seen a few articles and videos on social media about the Best Corporate Governance Awards from the Institute. This year, the awards are celebrating their 20th anniversary, and we held a press conference to call for entries early in July. Corporate governance is the foundation for sustainable development and market integrity. This is particularly important in times of uncertainty and market volatility. Companies with sustainable environmental, social and governance practices are more likely to outperform market counterparts during an economic downturn. Investors need to know how COVID-19 is affecting the operations of companies they invest in, and how it will affect their future. The awards are open for entries now, so if your organization wants to demonstrate its corporate governance excellence, please do not hesitate to submit your entry. Being the Chair of the Judging Panel, I look forward to reviewing the entrants later in the year, before the awards presentation in December. I had the opportunity to share about how small firms can embrace change and become more resilient in the current economic climate during a webinar organized by the International Federation of Accountants’ (IFAC) Small and Medium Practices (SMP) Advisory Group. During the webinar, “How small firms can evolve in the COVID-19 environment,” we discussed how SMPs can stay relevant in the new norm and ride on the opportunity to accelerate digitalization as well as to build an advisory practice. It was interesting to discuss the issues with my fellow members of the advisory group from around the world. Although we face different local challenges in dealing with COVID-19, we can learn from the practices of accountants in other jurisdictions. It is important to remember that we are not alone in dealing with this pandemic, and that while there are differences between countries, many accountants face similar challenges. You can find a recording of the webinar on IFAC’s YouTube channel. “ One of the strategic plan’s objectives is for our services and support to be recognized as meeting the needs of members and students.” Johnson Kong President Dear members,
CONTENTS Issue 7 Volume 16 July 2020 NEWS 01 President’s message 04 Institute news 06 Business news FEATURES 08 A plan for all A close look at the objectives set out in the Institute’s new strategic plan and what they mean for members 14 Second opinions How can “growth mindsets” help one go beyond and shape the future? 16 Leadership: Dr Daniel Yip The Chairman of the Federation of Hong Kong Industries on reinvigorating the city’s manufacturing sector 22 How to Nelson Chow, Supply Chain and Operations Consulting Partner at EY Advisory Services, on how to transform supply chains to deliver long-term value 23 Meet the speaker What to expect from an e-Series on issues in the Companies Ordinance from a company secretary’s perspective 24 Beating the scammers Experts discuss the recent rise in fraud cases and how the pandemic has created new challenges for accountants 30 Accountant Plus: Janice Wong The Finance Director at Pacific Coffee Company on how her CPA skills help in a highly competitive market 37 Thought leadership: Dr Nadira Lamrad The Assistant Director – Sustainability & ESG Advisory of Business Environment Council on bridging the gap between sustainability and business risks SOURCE 38 Amendments to the SME standard A look at changes to the Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard 24 30 Brewing up value Beating the scammers Experts discuss key types of fraud that accountants need to be on their guard against
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 Contributor Nicky Burridge 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 Director of Corporate Communications Dr Wendy Lam 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 July 2020. Print run: 7,320 copies The digital version is distributed to all 45,999 members, 17,047 students of the Institute and 2,358 business stakeholders every month. 40 A summary of the taxation of offshore indirect transfers toolkit Exploring the new toolkit 43 A new limited partnership fund regime for Hong Kong How the new Limited Partnership Fund Bill will encourage local investments 44 Technical news WORK-LIFE BALANCE 46 Controlling the court Institute members share how their passion for badminton continues to push them to strive for speed and perfection 52 Young member of the month Derek Lo, Senior Consultant at Deloitte China 54 Leisure Plus Spotlight on dream holidays; what members are currently reading and listening to 56 Let’s get fiscal Nury Vittachi on the reality of virtual reality Revitalizing made in Hong Kong Dr Daniel Yip, Chairman of the Federation of Hong Kong Industries, on what the reindustrialization of Hong Kong really means 54 46 Controlling the court Leisure Plus 16
NEWS The Institute’s Best Corporate Governance Awards (BCGA) are celebrating their 20th anniversary this year, and are now open for entries. Over the past 20 years, the BCGA have promoted and highlighted the value of good governance, identified those listed companies and public sector organizations that represent best practices in Hong Kong, and encouraged others to follow suit. The deadline to enter is 10 August. Recruiting QP workshop facilitators The Institute is recruiting workshop facilitators for the new Qualification Programme (QP). Members are invited to join us in unlocking the potentials of future-ready accountants. The general requirements for facilitators are: • A minimum of four years’ membership with the Institute. • Holding or recently held a responsible position in a professional, business, government or academic organization. • A working knowledge and demonstrated technical competence in the module subject matter. • Good command of spoken English. For enquiries, please email workshopadmin@hkicpa.org.hk. 2020 CIA Challenge Exam The Institute, in partnership with The Institute of Internal Auditors, is offering Institute members the 2020 Certified Internal Auditor (CIA) Challenge Exam – a fast track way to attain the globally recognized CIA designation. The application period is from 1 August until 30 September. More details can be found on the Institute’s website. Renewal of mutual recognition agreements The Institute’s mutual recognition agreements (MRA) with the Association of Chartered Certified Accountants and CPAAustralia have been renewed for five years. A new MRA with the United States has also been signed, and is effective from 1 July 2020 to 31 December 2022. The full list of MRAs with overseas accounting bodies and their respective admission requirements is available on the Institute’s website. Council meeting minutes The abridged minutes from the June Council meeting are now available. They can be found in the “Members’ area” of the Institute’s website. Institute news Business news BCGA 2020 invites entries Disciplinary findings Fung Pui Cheung, CPA, Lee Ping Kai, CPA (practising) and Pan-China (H.K.) CPA Limited Complaint: Failure or neglect by Fung and Pan-China to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Hong Kong Standards on Auditing, HKSA 240 The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, HKSA 500 Audit Evidence and HKSA 550 Related Parties. Failure or neglect by Lee and Pan-China to observe, maintain or otherwise apply HKSA 200, HKSA 500 and HKSA 705 Modifications to the Opinion in the Independent Auditor’s Report. Pan-China expressed unmodified auditor’s opinions on the consolidated financial statements of Richly Field China Development Limited, a Hong Kong-listed company, and its subsidiaries (collectively, group) for the years ended 31 March 2011 and 2012. Fung was the engagement director in 2011 and Lee was the engagement director in 2012. The Institute received a referral from the Financial Reporting Council (FRC) about irregularities in the audits. The group had agreed with a state-owned entity in China to undertake a construction project which was initially set to be completed by September 2011. FromSeptember 2011, the group signed several revised agreements with the entity which extended the construction period and redefined the scope of work. The group recognized the consideration received as deposit in advance, which was a liability, in the 2011 and 2012 financial statements. In their audits, the respondents relied on site inspections andmanagement representations to conclude that the construction project was in an early stage and the cost incurred was immaterial. They did not obtain and review relevant survey reports, which were necessary for assessing the progress of the project. As a result, they failed to properly evaluate whether the construction project was accounted for in the financial statements in compliance with the requirements of Hong Kong Accounting Standard 11 Construction Contracts. Separately, the group engaged a financial consultancy firm for advisory service in 2010. In the financial statements, the cost of the service was recognized based on the amount paid 4 July 2020
APLUS rather than the amount accrued. In addition, the recognized cost was wholly capitalized in assets and no part of it was included in expenses. The respondents failed to critically assess whether the group’s approach to accounting for the cost of the advisory service complied with applicable accounting requirements. In addition, the group engaged two entities to assist in its investment activities in 2011, andmade significant advances to those entities outside the normal course of business. In their audit, Fung and Pan-China failed to maintain adequate professional scepticismby understanding the business rationale of the advances, and critically assessing whether the group and the entities were related parties and whether the advances were recoverable. Decisions and reasons: All the respondents were reprimanded. In addition, Fung, Lee and Pan-China were ordered to pay a penalty of HK$220,000, HK$150,000 and HK$400,000, respectively. Further, the respondents were ordered to jointly pay costs of the Institute and the FRC totalling HK$234,018. Whenmaking its decision, the Disciplinary Committee considered that the breaches were serious and warranted a deterrent sanction to convey the message that they would not be condoned. The committee also considered that the disciplinary records of Fung and Pan-China indicated their repeated failures to comply with professional standards issued by the Institute. Ko Chiu Wan, Eric, CPA (practising) Complaint: Failure or neglect to observe, maintain or otherwise apply 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; HKSA 500 Audit Evidence; HKSA 705 Modifications to the Opinion in the Independent Auditor’s Report; the requirements concerning acceptance of an audit appointment under limitations of audit scope in section 410.52 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 of ethics. The Institute conducted a follow-up practice review on Ko’s sole proprietor practice, Eric CWKo &Company. The review revealed that a number of deficiencies identified in the initial practice review had not been appropriately addressed. It also identified new significant audit deficiencies. The findings reflected Ko’s failure to maintain an adequate quality control system for the practice, and raised concerns about the quality of the practice’s audit engagements and the professional competence of Ko. Decisions and reasons: The Disciplinary Committee reprimanded Ko and ordered the cancellation of his practising certificate, with no issuance of a practising certificate to him for 15months, with effect from2 July 2020. In addition, Ko was ordered to pay costs of disciplinary proceedings of HK$44,514. Whenmaking its decision, the committee took into consideration the particulars of the breaches committed in this case and Ko's admission of the complaint. Yip Kai Yin, CPA (practising), Ng Man Chung, Siman, CPA (practising) and Elite Partners CPA Limited Complaint: Failure or neglect by Yip and Elite to observe, maintain or otherwise apply HKSA 500 Audit Evidence, HKSA 510 Initial Audit Engagements – Opening Balances, HKSA 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures and HKSA 710 Comparative Information – Corresponding Figures and Comparative Financial Statements. Failure or neglect by Ng to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements. Further, Yip, Ng and Elite have been guilty of professional misconduct. Elite was newly appointed as auditor of China Agrotech Holdings Limited, a Hong Kong-listed company for the year ended 30 June 2012. It audited the consolidated financial statements of the company and its subsidiaries for that year and expressed an unmodified auditor’s opinion. Yip was the engagement director and Ng was the engagement quality control reviewer. The Institute received a referral from the FRC about irregularities in the audit. In the previous year, the company acquired a group and issued promissory notes and convertible bonds as purchase consideration. The purchase consideration would be adjusted if the acquired group failed to achieve a required annual minimumprofit. The company did not account for the consideration adjustment as a contingent consideration inaccordancewithHongKongFinancial ReportingStandard3 Business Combinations. The company committed further accounting errors by treating the consideration adjustment as a cash flow item and recognizing it in the financial year after the one in which the profit shortfall arose. The respondents failed to carry out appropriate audit procedures to identify the above errors in the financial statements. The respondents appealed the committee’s order, and as a result publication of the order was put on hold. On 2 June 2020, the Court allowed the respondents’ application to withdraw the appeal. Decisions and reasons: The respondents were reprimanded. Pursuant to the Disciplinary Committee’s order, the practising certificates of Yip and Ng were cancelled, with no issuance of practising certificates to Yip and Ng for nine months and six months respectively, with effect from2 June 2020 (date of withdrawal of the appeal). In addition, the committee ordered Yip, Ng and Elite to pay a penalty of HK$50,000, HK$50,000 and HK$100,000 respectively. The committee further ordered the respondents to jointly pay costs of the Institute and the FRC and it will determine the amount of costs to be paid after considering the parties’ submissions on that issue. When making its decision, the committee noted that the breaches were serious. They showed that the respondents’ knowledge of technical and professional standards was far below an acceptable level and, together with the respondents’ past regulatory records, pointed to a blatant and persistent failure to maintain professional competence. Details of the disciplinary findings are available at the Institute’s website. July 2020 5
NEWS Najib Razak, Malaysia’s former prime minister, was found guilty of fraud and corruption linked to the disappearance of US$4.5 billion from 1MDB, a government investment fund he once controlled, and sentenced to 12 years in prison on 28 July. Razak, who served in office from 2009 to 2018, was found guilty of seven different charges of abuse of power, breach of power and money laundering in the first of five trials. He has denied any wrongdoing and hopes to appeal the ruling. The Malaysian government has also dropped charges against American investment bank Goldman Sachs, after it agreed on 24 July to a US$3.9 billion settlement for helping to raise US$6.5 billion for 1MDB. Goldman Sachs arranged three bond transactions from 2012 to 2013, of which US$2.5 billion was channelled to senior officials at the bank, according to prosecutors in the United States. Business EY GERMANY ACCUSED OF PREPARING UNQUALIFIED AUDIT PRIOR TO WIRECARD COLLAPSE EY in Germany is in hot water after reportedly preparing an unqualified audit opinion on Wirecard’s 2019 financial statements in early June, weeks before the payment company collapsed. The draft version of the audit opinion, which was delivered to Wirecard, rejected claims made by whistleblowers and concerns raised by a previous audit conducted by KPMG in Germany into Wirecard’s accounts in April. KPMG was unable to confirm the existence of half of Wirecard’s business and €1 billion in cash, leading the group’s shares to plunge. Despite EY’s audit opinion noting that Wirecard’s “annual financial statements comply in all material respects with German commercial law,” the opinion also said that it represented the “status quo” of the ongoing audit. EY later said it was not prepared to provide an unqualified audit. FORMER MALAYSIA PM SENTENCED TO 12 YEARS IN JAIL Hong Kong’s unemployment rate has risen to 6.2 percent, its highest level in more than 15 years, as the city battles a new wave of coronavirus infections that could drag its waning economy further into recession. The figure, based on the period from April to June, is up from 5.9 percent recorded in March to May, and is the highest since January 2005 when the unemployment rate hit 6.4 percent. The hard-hit food and beverage sector’s unemployment rate rose to 14.7 percent, its highest since SARS, and is expected to increase amid new government measures. “The still serious [pandemic] situations in certain parts of the world, and renewed surge in local cases lately serve as a timely reminder that the economic outlook is still subject to huge uncertainties,” said Secretary for Labour and Welfare Law Chi-kwong. HONG KONG’S UNEMPLOYMENT RATE CLIMBS TO Nasdaq and the Singapore Exchange (SGX) will extend their partnership to help listed companies access capital in both jurisdictions. According to a statement issued by the SGX on 21 July, the pact will include a streamlined framework for issuers seeking a secondary listing on Singapore’s bourse. The framework allows documents required for the SGX listing to be based on information contained in the United States listing and filing documents to the U.S. Securities and Exchange Commission and/or Nasdaq, and to include additional disclosure in compliance with Singapore’s rules. The move, Bloomberg reports, will boost Singapore’s position as a prime location to list and comes at a critical time as tensions between the U.S. and China escalate, increasing competition between both Singapore and Hong Kong. Joseph Yam, former head of the Hong Kong Monetary Authority (HKMA), has warned that the world is headed towards a global recession due to the impact of the coronavirus pandemic. In a video posted by the HKMA on 27 July, Yam, who was chief executive of the HKMA from 1993 to 2009, said that cash injected by central banks won’t be enough to offset declining consumption as a result of the global pandemic, which has infected over 16 million people worldwide. Yam, who helped to establish the city’s peg to the United States dollar in 1983, also warns that the health crisis, coupled with tensions between the U.S. and Mainland China might drive the U.S. dollar down. “I actually worry more about the U.S. dollar falling sharply rather than the Hong Kong dollar being put under pressure on the weak side,” said Yam during the video interview. EX-HEAD OF HONG KONG MONETARY AUTHORITY WARNS OF GLOBAL RECESSION AHEAD NASDAQ TEAMS UP WITH THE SINGAPORE EXCHANGE TO ATTRACT DUAL LISTINGS 6.2% 6 July 2020
APLUS The Big Four have come under fire again after an annual inspection conducted by the Financial Reporting Council (FRC) in the United Kingdom uncovered an “unacceptable” number of poorly executed company audits. The FRC found that a third of the 88 company audits in its latest reviewwere subpar and required more than “limited improvements” in order to meet industry standards. The audits fell short in areas such as how companies report goodwill and intangible assets, revenue and contracts, and loan loss provisions. KPMG fared the worst, with only 61 percent of its sampled audits meeting industry standards. The findings add to the mounting pressure faced by the audit industry, which has faced criticism over its failure to flag up problems that led to various company collapses. U.K. ACCOUNTING FIRMS SCRUTINIZED BY WATCHDOG AGAIN PRESIDENT OF EUROPEAN CENTRAL BANK PUSHING FOR GREENER INITIATIVES Christine Lagarde, President of the European Central Bank (ECB), has voiced her commitment to pursuing greener objectives within the bank’s operations. It is the first time the president of the ECB has pushed for more environmentallyfriendly changes to its operations, which will include tapping into the bank’s €2.8 trillion asset purchase scheme. The move also makes the ECB the first main central bank to use a flagship bond-buying programme to encourage green initiatives. This comes after environmental campaigners urged the ECB to switch to green bonds over “brown” bonds, which are issued by carbon-intensive companies. LUCKIN COFFEE CALLS IN LIQUIDATORS TO SAVE BUSINESS FOLLOWING ACCOUNTING SCANDAL Luckin Coffee has commissioned liquidators and financial advisors to oversee a corporate restructuring and negotiate with creditors in a bid to rescue its business, less than four months after investigators found it had inflated its revenues by nearly US$300 million. The start-up coffee chain has appointed two executives from global professional services firmAlvarez &Marsal to act as joint provisional liquidators and financial advisors from global investment bank Houlihan Lokey to work with creditors, according to a regulatory filing. The filing noted the appointments will create a stable platform and allow the company and its advisors to negotiate and restructure its financial obligations. BDO, the fifth largest audit firm in the United Kingdom, has indicated to the U.K.’s Financial Reporting Council that it will split up its audit practice from its advisory business, in a bid to convince clients it can match the Big Four on audit quality. The push to separate audit units follows a spate of accounting scandals that have brought questionable audit practices to light in the U.K. Earlier this month, the regulator told the Big Four to announce how they aim to separate their audit divisions from their wider business by October. The watchdog hopes that by having firms ringfence their audit practices, auditors will have more independence from their firms’ thriving consulting divisions and challenge company directors. Mid-tier firms such as Grant Thornton, Mazars and RSM are expected to follow suit, a move that will help them to continue auditing highly sought-after FTSE 350 companies that the Big Four usually audit. BDO U.K. TO SPLIT AUDIT PRACTICE Hong Kong’s embattled hotel owners are pushing the government to waive rates for the next eight months up to March 2021, noting that they are operating at a loss as the coronavirus pandemic continues to keep tourist numbers at an all-time-low. The Federation of Hong Kong Hotel Owners, which represents over 200 hotels and accounts for 90 percent of the city’s hotel rooms, is putting pressure on the Rating and Valuation Department to waive the rates, which is around 5 percent of net profit during normal times. The calls came as the government implemented stricter social distancing measures and temporarily banned indoor dining at restaurants on 29 July. The hotel sector, still reeling from last year’s social unrest, has seen even greater losses this year, which has led to staff being furloughed or laid off. HONG KONG’S TROUBLED HOTELS SEEKING RATE EXEMPTION TO CUT LOSSES AMID CORONAVIRUS The Hang Seng Tech Index, which went live on 27 July, is set to provide investors with greater access to China’s technology giants. Launched by Hong Kong Stock Exchange, the new index hopes to provide Mainland China’s tech companies such as Tencent Holdings, Alibaba Group Holdings, JD.com and Xiaomi with more investment opportunities as more tech companies are looking to list in Hong Kong amid growing tensions between the United States and China. Investment experts note that through the new index, it will be more convenient for investors to buy stocks from Chinese tech companies, which have generally performed well during the coronavirus pandemic due to an increase in online shopping and e-commerce. It will also encourage investors to look beyond investing in the Hang Seng Index, which is dominated by banks, property and energy companies. HANG SENG TECH INDEX LURES INVESTORS July 2020 7
STRATEGIC PLAN Building trust 8 July 2020
APLUS Last month, the Strategic Plan 2020-2022 was released serving as a blueprint that shares the Institute’s long-term vision, and sets out its strategic aims. The Institute’s President, Johnson Kong and Chief Executive, Margaret Chan, talk to A Plus about how the new plan will help keep members and the Hong Kong profession sustainable and relevant in the face of some unprecedented challenges Illustrations by Gianfranco Bonadies I n Hong Kong, as with the rest of the world, the accounting profession is facing challenges in maintaining public trust. For Margaret Chan, this is clear just through talking to people. “During my interview with the Council, I encountered a lot of questions related to the public perception of the Institute and the accounting profession. People expressed concern on how to remain relevant and retain public respect. And when I engage with members, their concerns are around stringent regulation – do regulators understand their situations? There are a lot of misunderstandings about the role of regulators, our provision and services to members,” says Chan, Chief Executive of the Hong Kong Institute of CPAs. To tackle these misconceptions, everything the Institute does as an organization has to contribute to rebuilding trust in the profession, and so Chan put “building trust” at the heart of the Institute’s new A PLAN FOR ALL July 2020 9
STRATEGIC PLAN Building trust strategic plan. “Some of the concerns are very valid but some are perception-driven. A lot of the initiatives we put in the plan aim, on one hand, to improve the processes and outcomes of the Institute, and on the other hand, to align understanding across the board, among society and members,” she says. Preparations for the plan began long before Chan joined the Institute in July last year, but Johnson Kong, the Institute’s President, recalls that during the discussions at Council, it became clear that the CE’s input was needed. “We not only needed the buy-in of the new CE, but for them to be involved in its development,” says Kong. The plan was therefore one of the important tasks Chan focused on when she joined the Institute. With a fresh perspective, she decided to approach the new plan differently from previous long range plans – by getting rid of the “long” part. “The world is developing so fast nowadays, so a five-year planning horizon is too long. I talked to different people within the first few months of me joining and I heard different views every now and then. So I thought, ‘could we really put something in writing that would remain relevant for five years?’ I doubt it. That is why I thought we should focus on keeping it short,” explains Chan. Her idea of a more succinct three-year plan was fully supported by the president and the Council, and the Strategic Plan 2020-2022: Building Trust in Our Profession was released last month. “It’s better to set it to three years and review it every year so that all the moving parts can be updated,” adds Kong. The plan identifies developing challenges for the profession and Institute to overcome and sets out strategic objectives based on the Institute’s roles as a statutory organization. It also consists of specific initiatives that aim to meet those objectives, as well as a list of key action items explaining how the Institute will achieve the objectives and initiatives across the three-year time frame. To develop a truly relevant plan, current challenges of the profession, such as advances in technology, had to be considered. “Technological advances have a huge impact on us and the way we deliver our services, the way we operate our firms, the type of services we provide and the type of training that we need to give our members,” says Kong. Another major recent change in Hong Kong is the independent auditor regulatory and oversight body for public interest entity (PIE) auditors. “We’re talking about independent regulation now and indeed, last year the Financial Reporting Council (FRC) took over the regulation of PIE auditors,” says 10 July 2020
APLUS Kong. “Thirdly, in our profession, we are moving away from being a generalist to a specialist. Specialization is really the way forward.” He also highlights the changing operational mode of accounting firms, prompted by the COVID-19 pandemic. “In my view, the norm might become a hybrid of home and office working with more flexible hours. All these issues are incorporated one way or another in the plan.” Filling the gaps Chan, as Kong puts it, was the main driver of the strategic plan. She and her staff had put together thoughts that formed the initial framework of the plan in preparation for the Council’s strategy day in February, which was eventually cancelled because of the pandemic. Those constructive ideas and thoughts as well as the rest of the plan’s development were the result of constant engagement. “We held three members’ forums in September and we met with different regulators to understand their concerns and views on what they expect from us as an Institute. Drawing from what they provided, I identified areas and challenges that I think we need to address,” says Chan. She adds that extensive research was also done on the challenges faced by professional accounting bodies outside of Hong Kong. “Interestingly, the challenges that Johnson mentioned are not unique to Hong Kong. Professional bodies in other countries identified similar challenges – tough regulation, the impact of technology advancements, and the changing values and interests of younger members,” she notes. But while the responses of other accounting bodies to these challenges are insightful, Chan notes that it was crucial to ensure the plan provided solutions that were appropriate to the Hong Kong context. She points to the requirement for all registered companies to have an annual audit of their financial statements as an example of what makes the city unique from others. “We have more than one million companies registered with the Companies Registry and they are required to be audited. So you can understand the complexity of the landscape here. With many small practices conducting audits for a large number of companies, they need to understand the principle-based standards in a concise way so it is applicable to their firm or clients,” says Chan. “Nowwith the FRC taking over the regulation of PIE auditors, we have more space to help smaller firms understand accounting principles and assist them in serving small- and medium-sized entities better. Those are the areas and gaps that I think we need fill in Hong Kong that may not be the case in other parts of the world.” The objectives and initiatives Under the objective, “Safekeeping of our constitution, governance and organization,” is the initiative to seek to implement one member one vote for the election of the Institute’s president and vice-presidents. Kong sees this as one the most arduous yet important initiatives. “The action plan to achieve this will be challenging. It will probably take a long time to implement as it involves changing the Professional Accountants Ordinance (PAO),” he says. According to the strategic plan, a public consultation paper for one member one vote will be issued in the first quarter of next year. For Chan, the initiatives related to building the profession’s brand image are particularly top of mind. “These initiatives have been around for a while, but now it’s a matter of how we make them specific enough to make sure our members understand what we are trying to do and the community at large to recognize the value of the profession. That’s why it’s great we now have a new director of corporate communications,” she says, referencing the new director who joined at the start of July. “We have to promote and articulate our contributions to society. The profession has contributed positively in a lot of different areas and that should be recognized by members and society.” As part of the plan’s purpose of building trust, one of the objectives seeks to ensure the quality of auditors from the point of entry and throughout the licensing period. To achieve this, the aim is to implement “registered audit practice” proposals to strengthen licensing and address audit quality issues. “Currently, after becoming a CPA member and obtaining additional years of audit experience you can get a practising certificate, qualifying you to sign an audit report. Council has previously looked into a mechanism to require evidence of competency and an appropriate quality control system to be in place for one to do an audit. So we would like to propose a related amendment to the PAO and a consultation paper is planned to be “ These initiatives have been around for a while, but now it’s a matter of how we make them specific enough to make sure our members understand what we are trying to do and the community at large to recognize the value of the profession.” July 2020 11
STRATEGIC PLAN Building trust released next year,” Chan explains. To continue promoting the “Accounting Plus” concept, one of the initiatives is to further develop specializations for members and issue appropriate ethics and best practice guidance. Chan says the Institute is focusing on rolling out a foundation course in forensic accounting as a starting point. A broader framework for forensic accounting training will also be created. “We could consider elevating the Forensics Interest Group to become a faculty. This was the approach taken for restructuring and insolvency, where the interest group and Insolvency Practitioners Committee were combined and became the Restructuring and Insolvency Faculty. Within a year, on top of the existing foundation course, we launched the specialist qualification, which was the diploma course, and then the specialist designation. So to build a framework for forensic accounting, we may follow the same plan,” says Kong. Another initiative aims to strengthen thought leadership advocacy. Chan notes that while the Institute is already active in advocating its views on a global scale across different areas, there is still room to be more vocal on other topics, particularly sustainability. “Environmental, social and governance assurance could be an area we can focus on to assist the profession and other people in Hong Kong to give rise to better sustainability reporting,” she says. The Institute is also working to elevate its policy research work. With the reality of research publications often taking years to complete, Chan would like to work on more concise pieces, such as survey reports and experience sharing. “We are trying to collate various topics and ideas, and materials that would attract sufficient interest from the community and then build on it,” says Chan. She adds that she has observed other professional bodies increasingly bringing experts together for discussions as a way of pinpointing topics that need to be examined. “Even identifying the problem is not that easy. That is why we should try to solicit different input before we can really come to a solution.” Chan and Kong suggest that future research or advocacy topics could include business valuations and how to conduct remote audits. Kong says overall, the initiatives in the plan were designed to be straightforward for everyone. “In my view, this plan is receptive to members. In the past, our strategic plans were very high level and talked a lot about strategies and objectives rather than gave a detailed working plan for people to know what is going to be done,” he says. “This plan is easy to understand and easy to follow, and I hope members will like it.” To ensure these initiatives can be achieved within the next three years, Chan says the Institute will review the plan and share updates on the plan with the Council. “One of the initiatives is actually related to the efficiency and effectiveness of our organization, so it’s important to focus on using sufficient or the right type of resources and allocate those to the different action items.” Meaning for members Both Kong and Chan are confident that the strategic objectives and related initiatives are suitable and effective for keeping members relevant and well-rewarded leaders of the profession and the wider society. “I think we have tried very hard to make sure these strategic objectives and initiatives are issues close to members’ hearts. The 27 action items are very specific. If you look into it, you can see that they cover a whole spectrum of our members. We have something for accountants in business, practitioners, small- and mediumsized practices, students, young members and we have something for the staff,” says Kong. One issue that they acknowledge is important to members, and that is covered in the plan, is the improvement of work-life balance and members’ well-being. “Johnson has been previously advocating for more interest groups. We want to attract members to join different interest groups so that they could engage in different activities that would help them expand their social network,” says Chan. “I think another key area is finding a way to allow members to give value to society. We do have different types of volunteer work and social initiatives, and by involving members in these activities we can expand their horizon from just being accountants to being members of society.” Kong is particularly proud to finally launch the strategic plan – finalizing the strategic plan was first on his list of priorities when he became president. “It’s important that we got it launched and that we have a plan in place that is really relevant to our members and sets targets of what to achieve over the “ This plan is receptive to members. In the past, our strategic plans were very high level and talked a lot about strategies and objectives rather than gave a detailed working plan for people to know what is going to be done.” 12 July 2020
APLUS next few years. I think the most important part of it is people know what our plans are,” he says. “It’s a mixture of feelings. I’m very glad we have got this plan launched, but on the other hand there’s a lot of things that I would like to see happen before the end of my presidency. But COVID-19 and the restrictions have made things difficult.” While COVID-19 has prevented a lot face-to-face engagements, that doesn’t mean the engagements should stop. “It should never stop. The engagement exercise is ongoing. Last year, we conducted general members’ forums, but if the situation allows, we would like to organize forums targeting different member segments, like a PAIB members’ forum and a young members’ forum.” says Chan. The big challenge, she adds, is reaching out to members who have so far remained silent, yet are crucial for the Institute to hear views and feedback from. “There is a lot of analysis we need to do, a lot of ways we need to explore to get in touch with them. I think it goes beyond forums, seminars or events. It’s about other interactions like those through social media. A lot of people, especially the younger generation, do not think that they need to come to see us. So it’s a matter of howwe craft the message and communicate in an effective manner.” Kong and Chan hope that when members read through the strategic plan, they will see things of value to them. “Different segments of our membership have different focuses and needs but I would like them to see the bigger picture and overall direction of the Institute,” Chan notes. “With the Institute serving so many members, we certainly need to do more than serve individual needs, so I hope members recognize that they are part of a family, and that in this family we are serving everybody.” Strategic Plan 2020-2022: Building Trust in Our Profession sets out strategic objectives and specific initiatives based on the Institute’s vision, mission and values; trends that will affect Hong Kong and the profession; and stakeholder expectations. It can be found on the Institute’s website. July 2020 13
SECOND OPINIONS: HOW CAN “GROWTH MINDSETS” HELP ONE GO BEYOND AND SHAPE THE FUTURE? SECOND OPINIONS Qualification Programme KIT WONG DIRECTOR OF EDUCATION AND TRAINING HONG KONG INSTITUTE OF CPAS AND AN INSTITUTE MEMBER The world is evolving rapidly, so too is the business environment. This rapid evolution is driven by factors including technological advancement, the proliferation of innovative business models, changing societal expectations and more. These changes have had a significant impact on the role of accountants in society, creating new and higher expectations of them. Accountants are no longer left only to deal with numbers, but also to analyse and advise. In the future, the results generated by artificial intelligence, identifying the root causes of the issues, coming up with different alternatives, and articulating the messages to stakeholders will become even more necessary skills for professional accountants. However, change isn’t always welcomed with open arms. Some people succeed under change while others – who are equally talented – do not. Why is this? It is because mindset plays a crucial process. Professionals need to have a mindset dedicated to growth. Building up a “growth mindset” allows us to improve our skills, knowledge and expertise – all allowing us to better advise our clients and stakeholders. The four key ingredients to growth are: challenges; mistakes; efforts; and feedback. Here are a few behaviours to help continuously improve ourselves with a growth mindset: • Embrace challenging situations: Work through challenges rather than avoiding them and seeing them as threats. • Persist in the face of obstacles: Treat them as learning opportunities rather than getting discouraged when making mistakes. • See efforts as a pathway to success: Effort is an important part of the learning process rather than something that you must do when you are not good enough. • Learn from pain: Appreciate constructive feedback rather than getting defensive or taking it personally. For future generations of accountants, the Institute’s Qualification Programme (QP) aims at qualifying accountants with the agility needed to meet future market needs. By embracing the challenges through the QP, the candidates will grow and discover a plethora of relevant skills by completing training programmes, passing professional examinations and acquiring practical experience under an authorized employer or supervisor. In the longer term, we hope that these future-ready accountants will succeed not only in accounting but also in an increasingly wide range of specializations, sectors and locations. 14 July 2020 “ The four key ingredients to growth are: challenges; mistakes; efforts; and feedback.”
APLUS A sharing by one of my seniors, who was engaged in liquidation, inspired me to enter the profession. I learned from him that an accounting career can bring us in touch with people from a diverse range of backgrounds and offers the opportunity to meet interesting people and encounter interesting things. For me, a growth mindset opens up a dynamic and exciting career, and one I have enjoyed for many years. CPAs with growth mindsets are at a competitive advantage to take up the diversified roles available, but you must have the desire for learning and self-improvement. CPAs should always be proactive. But how? Asking “why” can help you gain insights into what you need to do differently to achieve a goal. Hence, rather than knowing “how” and doing the tasks like a robot, always ask “why” to understand the purpose, and the pros and cons. By doing so, you can be able to overcome the challenges in the ever-changing business world. In the long-term, the opportunities for accounting professionals will continue to grow and expand. Striving to add value to yourselves is the key to staying ahead in the profession. You need to show your strengths at work and be able to solve problems for your companies and clients. Accountants nowadays need to be more compatible and open-minded and to stay current with changes in the industry. The CPA designation has long been a symbol of professionalism, representing competency in specialized and professional knowledge and skills. With the changing demands for accountants’ services, professionalism requires growth. Increasingly, accountants must demonstrate transparency and integrity. Transparency enables our stakeholders to understand the information we give to them and the decisions we make. Integrity means that our stakeholders can trust our judgement, knowing that we make decisions that help them, yet do not harm society. Together these values build the professional image of accountants in society. For the next generation of accountants, the new QP incorporates more business-related workshops, where students need to investigate real-life scenarios and present the analysis. Group discussions drive students to share their knowledge and think in multiple angles – a key element of a growth mindset. You will be capable of responding to the various business opportunities, taking on the challenges and excelling in the rapidly changing business world. LANCO LEUNG ACCOUNTING MANAGER SWIRE COCA-COLA LTD. AND AN INSTITUTE MEMBER PAUL SHE PRACTISING DIRECTOR MAZARS HONG KONG AND AN INSTITUTE MEMBER Creating value is important in an everchanging world, especially in our profession. As professional accountants, we need to set ourselves up to be relevant and to know what is going on in the world. This is a constant process, yet by going beyond our scope of work we can create value. Having been an internal auditor and worked in a finance department, I need to take the initiative to understand the operation of other departments and give advice to colleagues. To create value, we have to analyse the risks in different areas including finance and security. Take for instance external factors such as volatile oil prices and changes in regulatory regimes, which may pose risks to the company. During the pandemic, it is essential to keep an eye on cost control and cash flow. Avoiding liquidity risk is the priority. Assessing the possible impact of risks and the probability of their occurrence – tasks of many accountants including internal auditors – requires a growth mindset, so as to be aware of how the business environment is changing. By making the company’s operation more efficient through cost-effective suggestions to reduce risks, accountants can contribute to shaping the future of their organization or clients. When the departments’ key performance indicators improve after your recommendations are adopted, you have a great sense of achievement. To succeed in this era, accountants must develop expertise in addition to their accounting skills, such as in taxation, governance, risk management and restructuring – that is, to develop a growth mindset. With our strong analytical skills and interpersonal skills, accountants can contribute to a wide range of specializations. With a growth mindset complementing our CPA training, we are well positioned to go beyond and shape the future. Through the QP, I was trained in a wide range of skills. My ability to apply professional knowledge and skills was strengthened and I learned new presentation skills. These skills are very helpful for my daily work, enabling me to provide explanation to figures, give an analysis for the operation and offer recommendations. By understanding the real-world working situations, reading news to learn about the international economy and political environment, attending the Institute’s continuing professional development events, and understanding your business operations, you can keep improving your skills and mindset. “Asking ‘why’ can help you gain insights into what you need to do differently to achieve a goal.” “ With a growth mindset complementing our CPA training, we are well positioned to go beyond and shape our future.” July 2020 15
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