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Issue 6 Volume 17 June 2021 DRIVING BUSINESS SUCCESS TESTING TIMES PLUS: PROFILE Barry Melancon, Chief Executive Officer of the American Institute of CPAs and the Association of International Certified Professional Accountants TECHNOLOGY SMPs share their digital transformation journeys SECOND OPINIONS How will CBD2 in Kowloon East transform Hong Kong for businesses? Stephen Lo FCPA, Chief Financial Officer of Prenetics, on the role his CPA skills play in helping everyone return to normalcy

PRESIDENT’S MESSAGE APLUS June 2021 1 The announcement this month by the Secretary for Financial Services and the Treasury about further changes to the regulatory regime for our profession came as a surprise. The proposals will have significant impacts on our profession and the Institute’s operations. The Institute has long advocated for enhancing Hong Kong’s regulatory regime, in a measured and considered manner, after consultations and assessment of all its impacts. The transfer of regulatory functions relating to public interest entity (PIE) auditors to the Financial Reporting Council (FRC) in October 2019, and the new oversight arrangements for the Institute’s operations across a range of areas, strengthened the regulatory regime, benefitting Hong Kong’s status as an international financial centre. We therefore believe that there are still a number of areas that need to be clarified regarding the rationale for further changes to the regulatory regime. The proposals represent a fundamental change in the regulatory landscape of the accounting profession and will affect the business community, especially our members. Any changes should be undertaken after thorough consultation with stakeholders to gauge their views and assess the implications of the reform. The government should provide more information, notably about the transitional arrangements and period. The Institute wishes for the continued smooth regulation of the profession, and hopes the government and the FRC will consider knowledge transfer and experience sharing, and setting up a tripartite task force to oversee the transition. Changes should also be implemented in stages to ensure the effectiveness of the reforms can be properly assessed. The Institute researched the regulatory systems in a number of jurisdictions, including other major international financial centres to determine how the proposals fit in with international practices. There is no one approach, although generally the focus is on the regulation of PIE auditors. Other jurisdictions have introduced independent regulation of PIE auditors in the last 20 years, but regulatory models for the whole of the accounting profession vary between jurisdictions. The regulatory models developed and applied in individual jurisdictions reflect legal and constitutional systems and structures that affect the organization of the profession, and are also influenced by other factors including statutory audit requirements that vary from place to place. In some jurisdictions, professional bodies retain, or have been delegated, certain responsibilities in the regulation of non-PIE auditors and generally oversee the professional conduct of non-practising members. While in other jurisdictions, all functions of the professional bodies come under the oversight of a government appointed authority. To facilitate discussion and feedback collection, the Institute has arranged two members’ forums on the proposals. The first, on 28 June, saw representatives of the Financial Services and the Treasury Bureau introducing the proposals, and their rationale behind the changes and take questions from members viewing the webinar. The second forum will take place on 6 July, where representatives from the FRC will explain their roles if the changes go through. Recordings of both forums will be uploaded and made available via the Institute’s website. As well as these two forums, the Institute is preparing an online survey to collect feedback. More information on the survey will be available soon. Raymond Cheng FCPA (practising) President Dear members, “ The Institute wishes for the continued smooth regulation of the profession, and hopes the government and the FRC will consider knowledge transfer and experience sharing, and setting up a tripartite task force to oversee the transition.”

CONTENTS Issue 6 Volume 17 June 2021 NEWS 01 President’s message 04 Institute news 06 Business news FEATURES 10 Beyond the bottom line Experts from the BCGA’s Organizing Committee and Review Panel discuss why ESG is now at the heart of every successful organization 16 Second opinions How will CBD2 in Kowloon East transform Hong Kong for businesses? 18 Leadership: Barry Melancon The CEO of the AICPA on how accountants can equip themselves to be future-ready 24 How to Dr Scarlett Mattoli, Clinical Psychologist at Psynamo Group, on how we can all achieve and maintain better mental health 25 Thought leadership: Ludwig Ng The Senior Partner, ONC Lawyers, on the pilot programme for the mutual recognition of cross-border restructuring and insolvency proceedings 26 Digital transformation: The journey so far The challenges and benefits SMPs face during their digital transformation journey 32 Accountant Plus: Stephen Lo FCPA The Chief Financial Officer of Prenetics, on how his CPA knowledge has helped to grow the business of a diagnostics and genetics testing company 39 Meet the speaker What to expect from a webinar on the IFRS Foundation’s role in the creation of new climate reporting standards SOURCE 40 Reconsidering consolidation, joint arrangements and related disclosures A summary of specific areas of the Institute’s response to the IASB request for information on IFRS 10, 11 and 12 10 26 Digital transformation: The journey so far Beyond the bottom line Experts from the Institute’s BCGA Organizing Committee and Review Panel discuss how organizations can meet and go beyond their environmental, social and governance targets

DRIVING BUSINESS SUCCESS About our name A Plus stands for Accounting Plus. It represents a profession that is rich in career options, stays relevant amid rapid changes, and adds value to business. This magazine strives to present the global mindset and varied expertise of Institute members – Accountants Plus. Editor Gerry Ho Email: gerry.ho@mandl.asia Managing Editor Jemelyn Yadao Junior Copy Editor Jeremy Chan Associate Editor Nicky Burridge Contributors Liana Cafolla and Erin Hale Registered Office 2/FWang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong Advertising enquiries Advertising Director Derek Tsang Email: derektsang@mandl.asia ISSN 1815-3380 President Raymond Cheng Vice Presidents Rosalind Lee Ken Li Chief Executive and Registrar Margaret W. S. Chan Director of Corporate Communications Dr Wendy Lam 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 June 2021. Print run: 7,190 copies The digital version is distributed to all 46,517 members, 16,517 students of the Institute and 2,358 business stakeholders every month. 42 Institute’s response to the IESBA exposure draft on definitions of listed entity and PIE in the code of ethics Assessing the IESBA’s proposals to broaden the definition of a public interest entity 44 Technical news WORK-LIFE BALANCE 48 Beating the clock The winners of the CPA Virtual Run 2021 share how to make each run your best 52 Young member of the month Laura Au CPA, Corporate Auditor at Arrow Asia Pac Ltd. 54 Leisure Plus Spotlight on the best art to see in the city, what members are currently reading and listening to 56 Let’s get fiscal Not everyone’s born with the gift of counting, says Nury Vittachi 18 Driver of change Barry Melancon, Chief Executive Officer of the Association of International Certified Professional Accountants, on the key role the Association plays in equipping accountants both young and old with the sought-after skills and expertise needed to stay relevant 54 48 Beating the clock Leisure Plus

NEWS On 8 June, Christopher Hui, the Secretary for Financial Services and the Treasury, published a blog post titled “Further reform of regulatory regime of accounting profession” on the Financial Services and the Treasury Bureau’s (FSTB) website. The proposals will see the Financial Reporting Council’s (FRC) investigation and disciplinary powers expanded to cover all CPAs and practice units, and its inspection power to cover all practice units. The registration of practice units and public interest entity auditors, and the issuance of practising certificates will also be vested with the FRC. The amendment bill will be introduced to the Legislative Council within this legislative year and the government aims to pass it and the subsidiary legislation required to enable the changes by June 2022. The government intends for the reforms to be effective from Q3 2022. On 28 June, the Institute held a virtual Members’ Forum where representatives from the FSTB went through the proposals and answered questions on the reforms. A recording of the forum will be available soon. The Institute will hold a second forum, featuring representatives of the FRC discussing how they plan to regulate the profession, on 6 July. Register now. For details on the Institute’s views on the proposals as well as updates from the Council’s meeting with the Secretary for Financial Services and the Treasury, and his team from the FSTB, please refer to the email sent to members on 21 June. CPA Virtual Run 2021 – highlights out now Photos from the CPAVirtual Run 2021 are now available on the Institute’s website, including shots of the prize presentation ceremony and CPA runners in action. Read the stories of some of the runners who took part in this year’s race on page 48. Minutes of Council meetings The abridged minutes from the April and May Council meetings are now available for members to read. They can be found on the “Members’ Areas” of the Institute’s website. Institute news Business news Institute holds two members’ forum on regulatory regime reform proposals 4 June 2021 Resolutions by agreement Chan Chi Kwong, Dickson CPA (practising) and CF Partners Limited Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principle of professional competence and due care in sections 110.1 A1(c) and R113.1 of the Code of Ethics for Professional Accountants. The respondents issued an accountant’s report for a solicitors’ firm under the Accountant’s Report Rules. In conducting the reporting engagement, the respondents failed to comply with the Accountant’s Report Rules and the Institute’s Practice Note 840 (Revised) Reporting on Solicitors’ Accounts under the Solicitors’ Accounts Rules and the Accountant’s Report Rules. They did not perform adequate procedures to identify (i) overdrawing of client money from client bank accounts by the firm; and (ii) drawing of money from client bank accounts by the firm for disbursements not yet expended. Furthermore, they did not adequately perform checks to identify an overpayment into the client bank accounts by the firm. Regulatory action: In lieu of further proceedings, the Council concluded the following should resolve the complaint: 1. The respondents acknowledge the facts of the case and the areas of non-compliance with professional standards; 2. The respondents be reprimanded; and 3. The respondents jointly pay an administrative penalty of HK$15,000 and costs of the Institute of HK$15,000. Cheng & Cheng Limited Complaint: Failure or neglect to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 500 Audit Evidence, HKSA 550 Related Parties, HKSA 560 Subsequent Events and the fundamental principle of professional competence and due care in sections 100.5(c) and 130 of the Code of Ethics for Professional Accountants. Cheng & Cheng audited the financial statements of a private company for the years ended 30 June 2015 and

APLUS 30 June 2016. The engagement director of the audits ceased to be a member of the Institute in 2020. For the 2015 financial year, Cheng & Cheng issued an unmodified auditor’s report on the financial statements initially prepared by the company. These financial statements were later replaced by a revised set of financial statements, on which Cheng & Cheng issued a modified auditor’s report. In conducting the audit procedures supporting the auditor’s report on the initial financial statements, Cheng & Cheng failed to obtain sufficient evidence to support the accounting treatment of a revenue item, and to properly enquire about the existence of significant related party transactions. In addition, in reporting on the revised financial statements, Cheng & Cheng failed to draw attention to the changes made to the financial statements and to the initial auditor’s report issued. For the 2016 financial year, a wrong set of the company’s financial statements were initially printed, and Cheng & Cheng carelessly allowed them to be issued with the practice’s unmodified auditor’s report attached. After discovery of the mistake shortly afterwards, a set of correct financial statements with attachment of a modified auditor’s report of Cheng & Cheng was issued in replacement of the initial financial statements. For both of the years, Cheng & Cheng failed to take appropriate action to prevent reliance on the initial auditor’s report that had been replaced, when management had not acted adequately to this effect. Regulatory action: In lieu of further proceedings, the Council concluded the following should resolve the complaint: 1. Cheng & Cheng acknowledge the facts of the case and the areas of non-compliance with professional standards; 2. Cheng & Cheng be reprimanded; and 3. Cheng & Cheng pay an administrative penalty of HK$50,000 and costs of the Institute of HK$15,000. Edmund Siu CPA (practising), Yip Kai Yin CPA and Elite Partners CPA Limited Complaint: Failure or neglect by Siu and Elite to observe, maintain or otherwise apply 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 Yip to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements. Elite audited the consolidated financial statements of China National Culture Group Limited (formerly known as China Railsmedia Corporation Limited), a Hong Kong listed company, and its subsidiaries for the year ended 31 March 2014. Siu was the engagement director and Yip was the engagement quality control reviewer (EQCR). The Institute received a referral from the Financial Reporting Council (FRC) about deficiencies in the audit. The financial statements included goodwill arising from the group’s acquisition in 2012 of a business that engaged in the development and operation of a mobile phone application for restaurant reservations. The application was under development and had not been launched as at 31 March 2014. In assessing impairment of the goodwill, the respondents placed reliance on a cash flow forecast of the acquired business prepared by management. In doing so, they failed to obtain sufficient appropriate evidence to support the estimated number of subscribers to the application and subscription price adopted in the forecast. The respondents also failed to prepare sufficient audit documentation on the expected launch date of the application, and their evaluation of the continued validity of the group’s agreement with a third party for marketing the application. Regulatory action: In lieu of further proceedings, the Council concluded the following should resolve the complaint: 1. The respondents acknowledge the facts of the case and the areas of non-compliance with professional standards; 2. The respondents be reprimanded; and 3. Each of Siu, Yip and Elite pay an administrative penalty of HK$50,000 to the Institute, and they jointly pay the costs of the Institute and the FRC totalling HK$289,594.80. Tsoi Yuen Hoi CPA (practising) Complaint: Failure or neglect to observe, maintain or otherwise apply HKSA 315 Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and its Environment and HKSA 500 Audit Evidence. Tsoi audited the financial statements of a private company for the year ended 31 March 2019. He failed to prepare adequate audit documentation of his understanding of the nature of the company’s business. In addition, Tsoi failed to obtain sufficient appropriate audit evidence to support that revenue from sales of goods was correctly recorded in accordance with the criteria for recognizing sales, and that purchases included in the financial statements did occur. Regulatory action: In lieu of further proceedings, the Council concluded the following should resolve the complaint: 1. Tsoi acknowledge the facts of the case and areas of noncompliance with professional standards; 2. Tsoi be reprimanded; and 3. Tsoi pay an administrative penalty of HK$20,000 and costs of the Institute of HK$15,000. Disciplinary findings KPMG, Fung Kwong Ming CPA, Wong Sau Ling CPA and Tse Hau Yin, Aloysius CPA Complaint: Failure or neglect to observe, maintain or otherwise apply Statement of Auditing Standards (SAS) 100 Objective and General Principles Governing an Audit of Financial Statements, SAS 230 Audit Documentation, SAS 300 Audit Risk Assessments and Accounting and Internal Control Systems, SAS 400 Audit Evidence, SAS 440 Representations by Management and SAS 460 Related Parties. KPMG was the auditor of Moulin International Holdings Limited (subsequently known as Moulin Global Eyecare Holdings Limited) for the three years ended 31 March 1999, 2000 and 2001. It expressed unqualified audit opinions on the financial statements of the company and its subsidiaries June 2021 5

(collectively group) for those years. Fung was the engagement partner in the 1999 audit and Wong was the engagement partner in the 2000 and 2001 audits. Tse was the concurring review partner in the audits for the three years. In 2005, trading of the group’s shares on the Hong Kong stock exchange were suspended and provisional liquidators were appointed for the company after it defaulted on repayment of its bank loans. The liquidators uncovered apparent accounting irregularities and certain senior personnel of the company were arrested. Having considered the available information, the Council of the Institute then directed an investigation under the Professional Accountants Ordinance (PAO) be conducted into the audit of the group’s financial statements for the year ended 31 December 2003, which was conducted by another auditor. In 2008, the Council considered information revealed in the liquidators’ legal actions and expanded the scope of the investigation to cover, among other things, the audits of the group’s financial statements for the years ended 31 March 1999 to 2001 conducted by KPMG. An Investigation Committee was subsequently formed. Investigation of the auditor engaged during the years that led up to the aforementioned loan default was delayed as a result of audit staff departure and seizure of certain audit working papers by the authorities. This impacted the progress of the investigation of KPMG. In March 2018, the Investigation Committee issued a report and found that the respondents failed to have proper regards for the technical and professional standards expected of them in the audits for the three years. There were deficiencies in the audit procedures performed on prepayment of subcontracting charges, trade receivables, other receivables and PRC tax exposures. On the basis of the findings set out in the Investigation Committee’s report, a complaint was lodged against the respondents under section 42C(1) of the PAO. Decisions and reasons: The respondents were reprimanded. In addition, the Disciplinary Committee ordered KPMG, Fung, Wong and Tse to pay penalties of HK$400,000, HK$100,000, HK$150,000 and HK$50,000 respectively. Furthermore, the respondents were ordered to jointly pay costs of disciplinary proceedings in the sum of HK$215,672. When making its decision, the committee considered the particulars in support of the complaint, the respondents’ personal circumstances and the parties’ conduct throughout the proceedings. Hsu Yuk King, Mercedes CPA (practising) and Kwong Kam Kwan, Alex CPA (practising) Complaint: Failure or neglect by Hsu to observe, maintain or otherwise apply HKSA 500 Audit Evidence and HKSA 230 Audit Documentation. Failure or neglect by Kwong to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements. Hsu was the engagement director, and Kwong was the EQCR, in an audit carried out by Andes Glacier CPA Limited on the consolidated financial statements of a Hong Kong listed company and its subsidiaries for the year ended 31 March 2017. The audit was selected for review in 2018 as part of the Institute’s practice review. The practice reviewer identified significant deficiencies in the audit procedures carried out under Hsu’s charge on impairment assessment of cash-generating units and the associated goodwill, valuation of biological assets, accounting treatment of the issuing costs and effective interest of certain bonds, and distribution expenses. Kwong failed to perform an effective engagement quality control review to evaluate the significant judgements made and conclusions reached by the audit team in the above audit areas. In addition, certain working papers shown to the reviewer during the practice review were not included in the originally assembled audit files. Decisions and reasons: The Disciplinary Committee reprimanded the respondents. In addition, the committee ordered Hsu and Kwong to pay a penalty of HK$150,000 and HK$80,000 respectively. The committee further ordered Hsu and Kwong to pay costs of disciplinary proceedings of HK$63,141 and HK$32,715 respectively. When making its decision, the committee took into consideration the particulars of the breaches committed in this case and the respondents’ early admission of the complaint. Ng Ka Hong CPA (practising) Complaint: Failure or neglect to observe, maintain or otherwise apply HKSA 220 Quality Control for an Audit of Financial Statements. Ng was the EQCR for a corporate practice’s audit of the consolidated financial statements of China E-Learning Group Limited (currently known as China E-Information Technology Group Limited), a Hong Kong listed company, and its subsidiaries (collectively group) for the year ended 31 December 2014. The corporate practice, which has now been de-registered, expressed an unmodified auditor’s opinion on the consolidated financial statements of the group and on the company’s balance sheet. The Institute received a referral from the FRC about deficiencies in the audit. The audit team failed to obtain sufficient audit evidence to support that there was no impairment of significant amounts due by certain subsidiaries included in the company’s balance sheet. In addition, the audit team failed to perform proper audit procedures in respect of two convertible bonds issued by the group during the year to settle certain existing liabilities. As EQCR, Ng failed to adequately evaluate the audit team’s judgements and conclusions reached in those areas. Decisions and reasons: The Disciplinary Committee reprimanded Ng. In addition, Ng was ordered to pay a penalty of HK$150,000 and costs of the Institute and the FRC totalling HK$100,222. When making its decision, the committee took into account the impact of Ng’s audit deficiencies on the reputation of the profession, the fact that Ng committed similar deficiencies in case after case, and the public interest involved. Details of the resolutions by agreement and disciplinary findings are available at the Institute’s website. APLUS June 2021 7

NEWS Business Workers worldwide are more optimistic this year about the future world of work a year into the pandemic, but expressed job security concerns, according to PwC’s Hopes &Fears 2021 report released last month. The study surveyed 32,517 people during the period of 26 January to 8 February, including business owners, full-time and part-time workers, contract workers and students across 19 countries. While 50 percent of respondents indicated having a positive outlook of the future and 64 percent said that technology will provide opportunities, 60 percent noted that automation is putting jobs at risk. The study surveyed 503 people in Hong Kong and found similar results, with 56 percent considering income to be the most important factor of a job, compared to 54 percent globally. SALES OF ESG BOND FUNDS HIT US$54 BILLION IN FIRST FIVE MONTHS U.K. AUDIT REFORMS FOR PUBLIC INTEREST ENTITIES COULD BACKFIRE, SAY ACCOUNTANTS LISTED COMPANIES MUST HAVE AT LEAST ONE FEMALE BOARD MEMBER The Hong Kong Monetary Authority (HKMA) will investigate the practicability of introducing a digital currency in the city over the next 12 months. The move, part of the HKMA’s plan to stay up to speed with other global central banks considering digital currencies, was announced by Eddie Yue, Chief Executive of the HKMA, during the launch of “Fintech 2025,” its four year plan, on 8 June. The study will look at concerns surrounding users’ privacy, security and anti-money laundering. “Hong Kong people, nowadays, are more willing to use digital banking services. In addition, many overseas central banks have studied digital currencies. It is the right time for the HKMA to explore if we should have an e-Hong Kong dollar,” said Yue. Hong Kong-listed companies must appoint at least one female director by 2025 or face penalties, under a new proposal put forward by the Hong Kong Stock Exchange (HKEX) in a bid to catch up with progress in gender diversity efforts internationally. The new ruling, effective 1 January 2022, will provide existing listed entities with a three-year window to comply, and would require all new listing candidates to have a woman on their boards at the time of listing. Penalties can include a public reprimand, a denial of access to fundraising facilities, training, suspension of trading and a delisting. The proposal, which has been met with both support and opposition, comes as the city sees almost a third of all listed companies consisting of an all-male board as of the end of last year, according to HKEX data. HKMA EXPLORING DIGITAL CURRENCY IN NEW FINTECH PLAN Accountants have warned that new proposals by the United Kingdom government to drastically increase the number of companies subject to stricter governance standards could push audit firms and their regulator to breaking point. The U.K. government has proposed widening the definition of public interest entities (PIE) to include entities such as companies listed on the Alternative Investment Market, a sub-market of the London Stock Exchange, private companies, universities and charities. The move would double the number of entities and would make it difficult for smaller companies to find auditors, even if smaller firms are hired to audit PIEs. “From a regulator’s point of view and from a market point of view, I think this will be strained to the point of falling over,” IainWright, Managing Director at the Institute of Chartered Accountants in England andWales, told the Financial Times. Investors have put US$54 billion into environmental, social and governance (ESG) bond funds globally in the first fivemonths of the year, according to financial services companyMorningstar. The figure is expected to surpass the almost US$68 billion invested in all of 2020 this year. The rising demand is driven partially bymillennial and young investors hoping to see their money do good and generate returns, according toBryn Jones, FundManager at Rathbone Brothers Plc, which runs the Rathbone Ethical Bond Fund, one of the oldest and largest ESG fixed income funds, reports the Financial Times. Demand for ESGbond funds ismainly centred in Europe, but other regions such as theUnited States were starting to see interest, according to JoseGarciaZarate, AssociateDirector atMorningstar. In theU.S., sales of ESGbond funds stood at US$4.75 billion in the first fivemonths of 2021, comparedwithUS$5.92 billion in thewhole of last year. WORKERS MORE OPTIMISTIC ABOUT THE FUTURE, ACCORDING TO PWC REPORT 8 June 2021

Hong Kong-based insurer FWD Group has applied for an initial public offering (IPO) in the United States, in what could be one of the year’s biggest listings by a Hong Kong company. The insurance group, which was founded in 2013 by the son of business magnate Li Ka-shing, Richard Li, said on 17 June that the IPO price range and number of American depositary shares had not yet been determined, and that the timing of the listing was subject to approval by the U.S. Securities and Exchange Commission (SEC). FWD’s holding company PCGI Intermediate Holdings said it had made a confidential filing with the U.S. SEC for the listing. The IPO application comes after rumours that the insurer was listing had been circulating in the market for over two years. Listed Chinese technology companies have seen their stock market value fall by 60 percent on exchanges worldwide in the second quarter of the year as Mainland regulators clamp down on the sector, according to the Financial Times. Initial public offerings (IPOs) by Chinese tech companies have raised just US$6 billion on bourses worldwide since April, a figure down by two-thirds from the first quarter. The downturn comes as regulators on the Mainland tighten their grip on Chinese tech groups, with the delay of Ant Group’s US$37 billion IPO in November 2020 also signalling a push by Mainland authorities to reprimand tech groups for what they believe to be monopolistic practices. CHINESE TECH LISTINGS DOWN FWD GROUP APPLIES FOR U.S. IPO XPENG HOPING TO RAISE HK$17.6 BILLION IN HONG KONG LISTING The Financial Conduct Authority (FCA) has banned Binance, one of the world’s largest cryptocurrency exchanges, from conducting any regulated activity in the U.K. The move comes as regulators continue cracking down on the cryptocurrency industry amid concerns relating to its role in illicit activities such as money laundering, fraud and often lacklustre customer protection. In a notice, which came on 25 June, the U.K.’s financial watchdog also issued a warning to consumers about the platform and its Londonbased affiliate, Binance Markets Limited. The trading of cryptocurrencies is not directly regulated in the U.K., but other related activities such as selling derivatives do acquire approval. The U.K. ban comes after Japanese regulators sent a warning to Binance on 24 June, noting the platform may be operating in the country without proper authorization. U.K. REGULATOR BANS CRYPTO EXCHANGE BINANCE APLUS PwC plans to invest US$12 billion to increase its global headcount by 100,000 over the next five years by creating new roles aimed at helping its clients tackle issues in ESG and in artificial intelligence. The new staff members will be direct hires from competitors and come from mergers and acquisitions the firm completes, according to Bob Moritz, PwC Global Chairman. The plan, announced on 15 June, reinforces the firm’s and other Big Four firms’ plans to have ESG advisory become part of their core business lines as investors and regulators become more critical of companies’ impact on the environment and their diversity initiatives. Chinese electric vehicle maker Xpeng is aiming to raise up to US$2.3 billion when it launches its dual primary listing on the Hong Kong Stock Exchange next month. The company is expected to price its IPO at US$180 a share and sell 85 million shares in what is expected to be the fifth largest flotation this year, behind IPOs by video-sharing mobile app Kuaishou Technology, logistics company JD Logistics, Internet and technology company Baidu and video-sharing website Bilibili. Xpeng’s Hong Kong IPO is expected to raise more than double the US$1.1 billion it raised when it listed on the New York Stock Exchange in August last year. Shares will start trading on 7 July under the stock code 9868. GLOBALLY IN VALUE IN SECOND QUARTER 60% PWC TO INCREASE GLOBAL HEADCOUNT BY WITHIN THE NEXT FIVE YEARS 100,000 June 2021 9

ACCOUNTANT PLUS Ellis Cheng With the growing importance of integrating good governance with environmental and social factors, the Institute’s Best Corporate Governance Awards is getting a new name. To mark the awards’ evolution, a panel of experts discuss what happens when sustainability factors are ignored as well as ways for organizations to successfully achieve their ESG vision. Nicky Burridge reports. Oil giant Royal Dutch Shell was recently ordered by a court in the Netherlands to cut its global carbon emissions by 45 percent compared with 2019 levels by the end of 2030. The ruling highlights the growing need for companies to focus on the environmental and social aspects of environmental, social and governance (ESG) to manage risk and ensure their business models are sustainable. Companies are facing pressure on a number of fronts to improve their performance in this area, while doing so can also open up new business opportunities and improve their long-term performance. BEYOND THE Be t Corporate Governance and ESG Awards ROUNDTABLE 10 June 2021

APLUS BOTTOM LINE Loren Tang FCPA (practising), Director at KLC and Chair of the Hong Kong Institute of CPAs’ Best Corporate Governance Awards (BCGA) Organizing Committee and a member of the BCGA Review Panel, says: “We have seen over the years that companies that don’t manage their ESG risks can have financial losses arising from them. We know a lot of investors now include the ESG performance of a company in their investment decision-making.” Ricky Cheng FCPA, Director – Head of Risk Advisory at BDO and member of the BCGAOrganizing Committee and the BCGA Review Panel, points out that companies – particularly those in the manufacturing and industrial sectors that fail to focus on sustainability – run the risk of incurring legal or regulatory action and significant fines. For example, oil company BP paid penalties and claims totalling nearly US$62 billion for the Deepwater Horizon disaster, while Volkswagen’s emissions testing scandal cost it US$33 billion in fines and vehicle refits. Alongside the financial penalties, incidents such as these also cause significant reputational damage, magnified by social media. At the same time, there is growing pressure from stakeholders, with both consumers and investors placing an increased emphasis on ESG. Meanwhile, as many economies strive to achieve net zero carbon emissions within the next 20 to 30 years, companies are having to focus their own strategies on transitioning to low carbon products and services. “Customer preferences change over time, and companies need to respond to market needs to produce more energyefficient or CO2-saving products, as well SPEAKERS: (From left) RICKY CHENG FCPA, Director – Head of Risk Advisory at BDO and member of the BCGA Organizing Committee and the BCGA Review Panel PATRICK ROZARIO, Managing Director, Moore Advisory Services Limited, and member of the BCGA Organizing Committee and Chair of the BCGA Review Panel LOREN TANG FCPA (practising), Director at KLC and Chair of the BCGA Organizing Committee and member of the BCGA Review Panel PETER TISMAN, Director, Advocacy and Practice Development at the Institute EDDIE NG CPA, Principal, Business Reporting and Sustainability at KPMG and member of the BCGA Review Panel June 2021 11

Best Corporate Governance and ESG Awards ROUNDTABLE “At the end of the day, you can’t have good corporate governance without good ESG, and you can’t have good ESG without having a good governance structure above it.” as making their fixed assets more resilient to climate change,” Cheng says. Patrick Rozario, Managing Director, Moore Advisory Services Limited, and a member of the BCGA Organizing Committee and Chair of the BCGA Review Panel, adds that companies must also pay attention to ensure their products do not have a negative social impact. He gives the example of a brokerage firm allowing pensioners to open margin accounts. “They must conduct a risk assessment on the suitability of investors, as the financial risk can be very high with margin accounts.” ESG is also an increasingly important aspect of risk management. Peter Tisman, Director, Advocacy and Practice Development at the Institute, points out that many of the top risks that companies face are now environmental risks, such as climate change and natural disasters. Eddie Ng CPA, Principal, Business Reporting and Sustainability at KPMG and a member of the BCGA Review Panel, adds that companies that incorporate environmental and social factors, as well as financial ones, into their enterprise risk management obtain a more holistic picture, enabling them to make better decisions. “There are opportunities, such as catering for changing market demands, which can create a competitive advantage for a company, but it will miss these opportunities if it does not take environmental and social factors into consideration. This is part of the business case for good ESG,” she says. Evolving rewards There is a growing focus from regulators, both in Hong Kong and internationally, on ESG. Tisman points out that the international regulatory body for stock exchanges, the International Organization of Securities Commissions, has spoken about an urgent need for globally consistent, comparable and reliable sustainability disclosure standards to be introduced. In Hong Kong, the Securities and Futures Commission (SFC) has recently conducted a consultation on the management and disclosure of climate-related risks by fund managers, under which fund managers would have to take climate-related risks into consideration in their investment and risk management processes. “There is a movement around the world towards more active investor participation and the issuing of stewardship codes, and this pressure is being felt in Hong Kong as an international financial centre,” he says. Ng points out that the Hong Kong Monetary Authority and the SFC have indicated that they will require listed companies to adopt climate-related disclosures aligned with those set out by the Task Force on Climate-related Financial Disclosures by 2025. In response to the growing focus on ESG among organizations, the Institute is renaming the awards this year to the “Best Corporate Governance and ESG Awards.” “Institutional investors and stakeholders want to understand how organizations address environmental and social matters,” Rozario explains. He adds that the new name also reflects the importance of integrating good governance with environmental and social factors, rather than treating the two areas separately. The Institute monitors trends in the market to ensure the awards remain relevant. Rozario notes that the awards expanded from being purely corporate governance awards to include sustainability in 2011, given the clear international trend 12 June 2021

APLUS towards increased sustainability reporting, with more Hong Kong listed companies starting to include sustainability or corporate social responsibility sections in their annual reports, or even publishing separate reports. In the following year, the Hong Kong Stock Exchange issued its first guidance on ESG reporting which gave a further push to listed companies. “In 2011, we introduced one overall award for sustainability and social responsibility reporting. Interest grew very quickly and, in the following few years, we expanded this section of the BCGA,” Tisman says. He explains that the renamed awards will look to identify companies that are doing well at both corporate governance and ESG, and moving towards greater integration of these elements. “At the end of the day, you can’t have good corporate governance without good ESG, and you can’t have good ESG without having a good governance structure above it.” Tang adds: “Over the years we have seen more companies producing very good ESG reports, and we have devoted more resources into looking at up to 500 reports annually as part of the awards. The renaming of the awards also reflects this change.” Starting from the top In order for companies to successfully adopt good ESG practices, Tang thinks it is important to have buy-in from the management to drive a top-down approach. “It is very important that you set the tone from the top and identify the factors and risks that have most strategic significance to the company’s survival and integrate them into the corporate strategy, so that the risks are not looked at in silos,” she says. Ng adds that it is also important that leadership takes ESG seriously and does not simply view it as a boxticking exercise, which has a cost but does not bring any value. “When you have leadership buy-in, it is easier to implement policies within a company and get buy-in from other stakeholders,” she says. Tisman agrees, pointing out that if sustainability initiatives are only being looked after by a junior-level team and no one at board level or management level is interested, they are unlikely to get the monitoring they need. “You need to have the right structures in place, the right kind of data and targets,” he says. He adds that companies should focus on the issues that are most material to them and not try to do everything, particularly in the case of small- and medium-sized enterprises. “They need to make it into something that is manageable and understandable, focusing on what is most relevant to their company,” he says. Tisman gives the example that for a food manufacturer, factors such as product quality and safety, and water stewardship are likely to be important, while for a car manufacturer, fuel efficiency and greenhouse gas emissions are more likely to be priority issues. “Companies need to talk to their stakeholders and conduct an analysis to reach a conclusion on what is really relevant for their own reporting, rather than trying to apply a whole framework of ESG-related aspects in a scattershot way,” he says. Monitoring progress Once companies have identified the issues that are material to them and set their ESG vision, they have to plan how they will achieve it. Rozario points out that they will not be able to achieve everything in one go. They should instead identify the different steps they will need to take, setting attainable goals along the way and backing them with resources. He thinks putting in place key In response to the growing focus on environmental, social and governance (ESG) issues among organizations, the Institute is renaming the awards this year to the “Best Corporate Governance and ESG Awards.” June 2021 13

ROUNDTABLE Best Corporate Governance and ESG Awards performance indicators (KPIs) to measure progress and encourage employee buy-in is an important part of achieving long-term goals. “Having attainable KPIs helps everyone work towards one direction,” he says. Ng stresses that KPIs must not only be relevant, but that companies should also set ones linked to short and medium-term goals, as well as long-term ones, so that they can monitor whether they are on target or need to accelerate their progress. Cheng adds that KPIs should also be aligned to the company’s industry, for example whether environmental goals are linked to CO2 emissions, energy consumption or water use. “Corporates can also make KPIs relevant to them, such as looking at the revenue generated from low carbon products, or cost savings due to energy efficiency, which may be more motivating, especially on the management side,” he says. Cheng adds that management’s remuneration could also be linked to achieving these KPIs. Tang points out that as well as setting KPIs and monitoring progress towards long-term goals, companies should also report on their progress to show transparency and consistency and win trust from investors and stakeholders. Ng agrees: “We see reports where companies say they have put a lot of policies in place, but without KPIs, we don’t know if they have actually implemented them or what progress they have made.” The rise of non-financial reporting The increased focus of investors and stakeholders on ESG factors is driving demand for companies to publish non-financial information, according to Tang. “Non-financial reporting is key for them to assess whether the company’s performance is on track and whether it can be sustained and is resilient to upcoming risks. This information is really key to their decision-making,” she says. Ng adds, “Financial and non-financial reporting should not be looked at in silos. Investors need information on how a company operates from both angles.” Cheng agrees that there is increasing interdependence between financial and non-financial information. “Investors want to look at how ESG factors are affecting the financial statements, such as what provisions companies have made to make their properties resilient to climate change, how they are spending on research and development (R&D) for new products, how ESG factors may impact a company’s business model and how they could impact its value.” Tang sums up that without both sound financial and non-financial reporting, investors are unlikely to have confidence that companies have the right strategies, policies and business models in place for the long-term. “If it is done well, this combination is indicative of a company that is likely to sustain its value over the longer term,” she says. Currently, there are a number of frameworks to help companies report on ESG matters, such as the Global Reporting Initiative, the United Nations Sustainable Development Goals, and, in the United States, the Sustainability Accounting Standards Board, as well as organizations focusing more specifically on climaterelated reporting. All of this can be confusing. However, there are also moves to make financial and nonfinancial reporting more integrated, e.g. through the framework developed by the International Integrated Reporting Council and, more recently, announcements that a number of these bodies intend to work more closely together. Tisman says: “The Trustees of the IFRS Foundation are now talking about changing their remit to set up an International Sustainability Standards Board “If ESG data is assured by an independent professional, people find it more acceptable and reliable.” 14 June 2021

APLUS modelled on the International Accounting Standards Board under the foundation. If it goes ahead, this could help to harmonize ESG reporting standards.” The role of accountants Accountants have a key role to play in many areas of helping companies improve their sustainability, including assisting with the collection, analysis and reporting of data. “Ensuring the completeness and accuracy of data is something that accountants always do,” Rozario says. Ng adds that accountants are also good at communicating business value and insight to corporates, which can help them see the value of having sound ESG policies in place. Tang says: “In addition to being adept at applying standards, accountants generally have a good knowledge of areas like risk management and internal control, and internal audit – skill sets that will be increasingly important in ensuring the integrity of ESG data gathering and analysis reporting. I think accountants are well set to play a leading role in this area in the future.” But, Tisman adds, they also need to collaborate with other professionals who have a background in specific areas where data collection is important, such as those in emissions and other relevant aspects of ESG. Cheng thinks accountants can also play a role in the materiality assessment of ESG factors and risks for companies. “They can also make use of their financial knowledge to assess the return on investment for R&D projects for the development of new products and services,” he says. Accountants also have an important role to play in assurance. Tang says: “If ESG data is assured by an independent professional, people find it more acceptable and reliable.” Ng agrees, adding that accountants are used to exercising professional judgement and professional scepticism. Tisman points out that as there is currently no single standard for recording and reporting ESG data, concerns about the quality of this data may be deterring accountants from doing more assurance. To assist practitioners, the Institute recently issued Auditing and Assurance Technical Bulletin 5 Environmental, Social and Governance (ESG) Assurance Reporting, which details how to apply Hong Kong Standard on Assurance Engagements (HKSAE) 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information. “The Institute’s guidance is one of the first of its type,” he says. Ng points out that ESG and sustainability frameworks are less developed than the accounting frameworks, which can be a challenge to auditors. As a result, the Institute is planning on targeting areas that are challenging to the profession and offering guidance to enhance the consistent application of HKSAE 3000. In the long run, greater comparability in the approach to assuring ESG reporting will also be important for investors and other stakeholders. While implementing ESG policies and reporting on nonfinancial information may be challenging, Ng thinks it is something companies cannot afford to ignore, as environmental and sustainability risks and opportunities will affect companies’ operations and longterm value creation. Tisman agrees: “A lot of things have happened over the last decade or more that has caused civil society and the public to lose trust in business but, by giving serious attention to ESG, companies can regain some of that trust and show that they are collaborators in helping to ensure a long-term sustainable future for the planet.” “We see reports where companies say they have put a lot of policies in place, but without KPIs, we don’t know if they have actually implemented them or what progress they have made.” June 2021 15

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