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Issue 3 Volume 18 March 2022 DRIVING BUSINESS SUCCESS PROFILE Ernest Lee FCPA (practising), President of The Hong Kong Chartered Governance Institute BUDGET 2022-23: MEASURES FOR TESTING TIMES Experts discuss how this year’s budget measures will help individuals and society SECOND OPINIONS How will blockchain transform accounting? FIXING BAD HABITS How can accountants help to promote better spending habits and GPJCPEG ƂPCPEKCN NKVGTCE[! PLUS:

PRESIDENT’S MESSAGE APLUS March 2022 1 During the month of March, the Institute worked hard to champion the needs of the profession in face of the fifth wave of COVID-19 cases locally. We have been maintaining ongoing communications with authorities to relay the concerns and challenges faced by our members and the profession under the prevailing situation. For instance, the Institute has been communicating with the Inland Revenue Department (IRD) and requested extensions of upcoming profits tax, salaries tax and other filing due dates, and asked for clear and early guidance on flexibility around other tax deadlines. We were therefore pleased to share with our members that the IRD responded favourably to some of the main requests made by the Institute and other stakeholders, and announced arrangements for certain longer extended tax due dates. Communications about announcements made by the Stock Exchange of Hong Kong Limited, the Securities and Futures Commission, and the Hong Kong Monetary Authority can all be found on the Institute’s COVID-19 – CPA Information Centre webpage. While we will continue to explore possible ways to help members, we also seek to give back to society where we can. In the past month, the Institute donated approximately HK$1 out of each member’s membership fee to, jointly with other accounting bodies, offer financial support to local community service groups that are working hard to help the underprivileged fight against the pandemic. As an organization that represents this prestigious profession, we do not take our privilege lightly. On 9 March, the Financial Reporting Council (FRC) launched its Engagement and Consultation Paper on the further reform of the accounting profession to provide an explanation of its regulatory principles and approaches, and has invited interested parties and the public to share their views on or before 4 May. As these changes are expected to have a profound effect on members, the Institute is jointly organizing three members’ forums on 4, 7 and 11 April with the FRC, Hong Kong Association of Registered Public Interest Entity Auditors Limited, and Society of Chinese Accountants and Auditors respectively for different groups of audiences. We will also be hosting a members’ forum in light of the Financial Services and the Treasury Bureau’s proposal to revise the election arrangements of the Council of the Institute. The proposals include legislative amendments in three aspects: (a) raising the nomination threshold for election to the Council; (b) aligning the election cycle for the 14 elected Council members from an annual cycle to a biennial cycle; and (c) enhancing the administrative procedures of the HKICPA. A new webpage has been set up on the matter, which will bring together relevant information to help members keep abreast of the recent developments, and the Institute will host a members’ forum on 8 April, where Under Secretary for Financial Services and the Treasury, Joseph Chan, and the Legislative Councillor of the Accountancy Functional Constituency, Edmund Wong, have been invited to discuss the preliminary proposals. We will also be launching a members’ survey to gauge your views on the matter very soon. It is paramount that members’ views are adequately consulted and relayed as we implement these important changes. I would encourage our members to make sure they are sufficiently educated on the matters and seize the opportunity to voice their opinions through the members’ forum and upcoming survey. How we handle change is a great litmus test for our character, and we hope the culture of the profession and Institute can shine through collectively. The Institute will continue to monitor the various evolving situations and we will listen to your thoughts. Please continue to stay tuned to the Institute’s communications and thank you for your support. Loretta Fong CPA (practising) President Dear members, “ It is paramount that members’ views are adequately consulted and relayed as we implement these important changes. I would encourage our members to make sure they are sufficiently educated on the matters and seize the opportunity to voice their opinions through the members’ forum and upcoming survey.”

CONTENTS Issue 3 Volume 18 March 2022 NEWS 01 President’s message 04 Institute news 07 Business news FEATURES 08 Budget 2022-23: Measures for testing times How will this year’s measures help Hong Kong? 14 Leadership: Ernest Lee FCPA (practising) The President of the Hong Kong Chartered Governance Institute on the need for a principlesbased approach to corporate governance 20 Good habits start young How accountants can help to promote financial literacy and better spending habits among young adults and children 28 Second opinions How will blockchain transform accounting? 30 How to Linda Biek, the Institute’s Director of Compliance, on performing the right audit documentation 31 Thought leadership: Fiona Nott The Chief Executive Officer of The Women’s Foundation on breaking down barriers for men to further gender equality in the workplace 32 Q&A with a PAIB Chen Zhao CPA, Head of Technical Security at Asian Development Bank 33 Q&A with a PAIP Isabel Lin CPA, Director at KPMG 34 Meet the speaker What to expect from an upcoming e-Series on environmental, social and governance reporting SOURCE 35 Are liabilities subject to Vœ˜`ˆÌˆœ˜Ã V>ÃÈwi` >à current or non-current? A summary of the Institute’s response to the IASB Exposure 08Budget 2022-23: Measures for testing times Experts reflect on the Financial Secretary’s budget speech and discuss whether this year’s measures are enough to help Hong Kong weather the current storm 32 Q&A with a PAIB 33 Q&A with a PAIP

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 Copy Editor Jeremy Chan Associate Editor Nicky Burridge Contributor Thomas Lo ,i}ˆÃÌiÀi` "vwVi 2/FWang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong Advertising enquiries Advertising Director Derek Tsang Email: derektsang@mandl.asia ISSN 1815-3380 President Loretta Fong Vice Presidents Roy Leung Edward Au Chief Executive and Registrar Margaret W. S. Chan Director of Corporate Communications Dr Wendy Lam Publication Manager Michael Wong Editorial Coordinator Maggie Tam "vwVi č``ÀiÃà 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 Draft ED/2021/9 Non-current Liabilities with Covenants – Proposed amendments to IAS 1 36 Future of reporting in insurance: new opportunities from reporting transformation A look at how IFRS 17 Insurance Contracts will bring enhanced consistency and transparency in financial reporting across the insurance industry, and how insurers can prepare themselves in the run-up to its implementation 38 Technical news WORK-LIFE BALANCE 40 Framing the moment CPAs on how photography has given them a new perspective on life 46 Young member of the month Adam Ho CPA, Accountant at A. R. Medicom Inc. (Asia) Ltd. 48 After hours Institute members recommend their favourite ways to unwind 14 Beyond compliance Ernest Lee FCPA (practising), on his new role as the President of the Hong Kong Chartered Governance Institute, and why companies should ensure a more purposeful approach to corporate governance 48 40 Framing the moment Afterhours A Plus is the official magazine of the Hong Kong Institute of Certified Public Accountants. The Institute retains copyright in all material published in the magazine. No part of this magazine may be reproduced without the permission of the Institute. The views expressed in the magazine are not necessarily shared by the Institute or the publisher. The Institute, the publisher and authors accept no responsibilities for loss resulting from any person acting, or refraining from acting, because of views expressed or advertisements appearing in the magazine. ©Hong Kong Institute of Certified Public Accountants March 2022. Print run: 6,940 copies The digital version is distributed to all 46,346 members, 16,982 students of the Institute and 2,358 business stakeholders every month.

NEWS Institute news Business news 4 March 2022 Further reform of the accounting profession is expected to commence in the fourth quarter of this year. Upon commencement, the Financial Reporting Council (FRC) will become the independent regulator for the accounting profession in Hong Kong and its name will change to Accounting and Financial Reporting Council. The FRC launched its Engagement and Consultation Paper on further reform of the accounting profession on 9 March. The paper explains its regulatory principles and approaches, and aims to help stakeholders understand its rationale and solicit their views on how to ensure its proposed policies meet the public’s expectations through an effective disciplinary regime. The FRC has invited interested parties and the public to share their views on or before 4 May so that it may take into consideration the interest of key stakeholders. To provide members with a better understanding of the paper, the Institute will jointly organize three members’ forums on 4, 7 and 11 April with the FRC, Hong Kong Association of Registered Public Interest Entity Auditors Limited, and Society of Chinese Accountants and Auditors respectively for different groups of audiences. As major stakeholders, members are invited to join these forums to learn from speakers from the FRC about aspects of the paper and to share their views with us. Three forums will also be recorded and made available as e-Seminars for those unable to attend. Visit the Institute’s website for the enrolment details. Members’ forum on reviewing the election arrangements of the Council The Secretary for Financial Services and the Treasury, Christopher Hui, published a blog post on 8 March with regards to enhancing the Institute’s Council election arrangements. The Financial Services and the Treasury Bureau (FSTB) will brief the Panel on Financial Affairs of the Legislative Council on 4 April about the proposed enhancements on the Institute’s election of Council members. The proposed changes will likely affect all members of the Institute and it is therefore important members’ views are obtained and consulted. In this connection, the Institute has set up a new webpage on the matter, which will bring together relevant information to help members understand the proposals. To provide members with a better understanding of the FSTB’s intentions of the proposed changes to the Council election, the Institute will organize a members’ forum on 8 April where Under Secretary for Financial Services and the Treasury, Joseph Chan, and the Legislative Councillor of the Accountancy Functional Constituency, Edmund Wong, have Members’ forums on further reform of the accounting profession

APLUS Disciplinary findings Yeung Chun Wai, Anthony CPA Complaint: Failure or neglect to observe, maintain or otherwise apply the fundamental principle of Professional Behaviour under section 100.5(e) and as elaborated in section 150.1 of the Code of Ethics for Professional Accountants, and being guilty of dishonourable conduct. Yeung was the Chairman, Chief Executive Officer, and an Executive Director of Great Wall Terroir Holdings Limited (formerly known as e-Kong Group Limited). At the relevant times, he was entrusted with the management of the company’s securities investment business and was authorized to operate its securities account. The Listing Committee of the Stock Exchange of Hong Kong Limited (stock exchange) sanctioned Yeung in March 2020 for his conduct in relation to a number of material connected transactions of purchases and sales of Hong Kong listed shares, which were undertaken between him and the company between August 2015 to June 2017. Yeung executed the transactions without the board of directors’ knowledge, and failed to obtain shareholders’ approval of some of the transactions that required such approval under the Listing Rules. In addition, Yeung failed to ensure that information contained in certain announcements about the transactions made by the company was accurate, complete and not misleading. Finding that Yeung was in breach of the Listing Rules and his director’s undertakings, the stock exchange issued a censure and opined that his retention of office would be prejudicial to the interests of investors. Decisions and reasons: The Disciplinary Committee ordered that the name of Yeung be removed from the register of CPAs for 15months with effect from2 March 2022. In addition, Yeung was reprimanded and ordered to pay costs of the Institute of HK$58,386. Whenmaking its decision, the committee considered the circumstances of the case, and in particular Yeung’s blatant disregard of the disciplinary proceedings. Hu Yi, registered student Complaint: Hu’s falsification of the examination results on two occasions demonstrated serious misconduct which renders him unfit to become a CPA under by-law 34(1)(d) of the Professional Accountants By-Laws. Hu was registered as a student of the Institute’s Qualification Programme (QP). At the relevant time in 2019 and 2020, he was an audit senior of a CPA firm. In March 2020, the firm conducted spot checks on the examination results submitted by its staff members and found that Hu had provided the firm with two falsified Examination Status Reports for the June and December 2019 QP examinations. The firmdismissed Hu and reported the matter to the Institute. Decisions and reasons: The Disciplinary Committee ordered that Hu be declared unfit to remain a registered student and his name be removed from the register of registered students with effect from30March 2022. In addition, Hu was ordered to pay costs of the disciplinary proceedings of HK$55,465. When making its decision, the committee took into consideration the circumstances of the case, andmitigating factors. Details of the disciplinary findings are available on the Institute’s website. been invited to discuss the preliminary proposals. The Institute will also launch a survey to collect members’ feedback on the proposals in due course. Global accounting bodies urge profession-wide commitment to reverse nature loss The Institute has joined together with nine of the world’s leading accounting institutes to support a new call to action in response to the nature crisis, ahead of the upcoming United Nations Convention on Biological Diversity COP 15. Working together as part of the Global Accounting Alliance, we signed the call to action “Nature is Everyone’s Business” to signal the important role the profession plays in this crisis. Read the Institute’s press release for details. Business Valuation Programme The Business Valuation Programme is intended to help new valuation specialists or those interested in a career in valuations to enter the specialization. It features 11 compulsory and four elective modules (from which participants must choose at least two) across four phases “Valuation Fundamentals,” “Transactions Valuation,” “Financial Reporting Valuation” and “Valuation Application” for a total of 24 to 28 continuing professional development hours. The programme will be held in April to June 2022 and conducted via Zoom. More details are available on the Institute’s website. The programme will cover: • Business valuation essentials including valuation fundamentals and valuation standards; • Business valuation techniques for transaction purposes; • Valuation of various classes of assets and liabilities including purchase price allocation, intangible asset, financial instruments, property, plant and equipment, and biological assets for financial reporting purposes; and • Case studies including the application of various valuation approaches and review of valuation reports. Council meeting minutes The abridged minutes from the January and February (Strategy Day) Council meetings are now available in the “Members’ area” of the Institute’s website. March 2022 5

NEWS Business 5 The number of Chinese companies listed in New York that were named by the United States Securities and Exchange Commission (SEC) as the first groups that will be delisted if they do not hand over detailed audit records that back their financial statements. SEC said fast-food giant Yum China, biotechnology groups BeiGene, Zai Lab and HutchMed, and technology company ACM Research faced delisting. 40% The percentage of Hong Kong’s online transaction value that digital wallets will account for by 2025, according to 2022 Global Payments Report, published by United States financial technology company FIS. Examples of digital wallets include Alipay, WeChat Pay, Tap &Go and Octopus. 7 March The day both EY and Deloitte pulled their operations out of Russia, becoming the last of the Big Four firms to announce their exit following Russian President Vladimir Putin’s invasion of Ukraine. With about 15,000 staff and partners in Russia, the withdrawals are the most significant exits of professional services firms from Russia since the conf lict began last month. ISA 220 (Revised) Quality Management for an Audit of Financial Statements A standard that requires the audit engagement partner to actively manage and take responsibility for the achievement of quality. The International Auditing and Assurance Standards Board released a firsttime implementation guide to help stakeholders properly implement the standard. More details on page 38. HK$2.4 billion The amount of losses Hong Kong Disneyland posted for its last financial year, its seventh consecutive without turning a profit. The park did not operate for about 40 percent of the 2021 financial year’s calendar days due to mandatory closures imposed under COVID-19. Shares of Cathay Pacific Airways Ltd. rose by 4.9 percent, its highest intraday level since June 2020, on 21 March, following an announcement from Hong Kong Chief Executive Carrie Lam that the flight ban on nine countries would be lifted and mandatory quarantine eased from 14 to seven days. The airline, however, still reported losses of HK$5.5 billion in 2021 due to pandemic-related travel restrictions. March 2022 7 US$4.50 The approximate amount Brent crude lost per barrel after Mainland China implemented a city-wide lockdown in Shanghai on 28 March. The futures contract for Brent crude – an international benchmark for oil prices – was down by 4 percent at US$115.80 a barrel. Bruce Mackenzie The new chair of the IFRS Interpretations Committee, effective from 1 March. Mackenzie has served as a member of the International Accounting Standards Board since October 2020. More details in Technical news on page 38. “The MoU between GRI and the IFRS Foundation is a strong signal to capital markets and society that a comprehensive reporting system, which combines financial and impact materiality for sustainability reporting, is possible on a global scale.” – Eelco van der Enden, Chief Executive Officer of Global Reporting Initiative (GRI), said. The IFRS Foundation and GRI announced on 24 March an agreement under which their respective standard-setting boards, the International Sustainability Standards Board and the Global Sustainability Standards Board, will align their work programmes and standard-setting activities.

Budget 2022-23 HONG KONG ECONOMY BUDGET 2022-23: MEASURES FOR TESTING TIMES Hong Kong’s 2022-23 Budget, announced last month, introduced measures to help the city’s citizens and businesses see it through current challenges. Experts reflect on the Financial Secretary’s budget speech and tell Nicky Burridge how the measures will impact different sectors of the economy and community Illustrations by Gianfranco Bonadies F rom HK$10,000 in spending vouchers for residents, to investment in training and infrastructure, Hong Kong’s 2022-23 Budget combines measures to help the city weather the pandemic and to remain competitive in the long term. Announced on 23 February, this year’s budget was delivered against a backdrop of significant challenges, as the city struggles with its fifth wave of COVID-19 infections, and the ongoing drag on the global economy caused by the pandemic and geopolitical tensions. “I think the Financial Secretary had a really tough job in setting this year’s budget because Hong Kong is facing one of the most testing times in its history,” Jo-An Yee FCPA, Tax Partner at EY Tax Services Limited and a member of the Institute’s Taxation Faculty Executive Committee (TFEC), says. Significant funds were allocated for antipandemic measures, with a total of HK$67.5 billion set aside for support, ranging from the construction of anti-epidemic facilities to strengthening the testing work of the Food and Health Bureau. Yee praised Financial Secretary Paul Chan’s focus on fighting the pandemic, as well as his efforts to safeguard Hong Kong’s economy and people’s livelihoods from its impact. She points out that in 2021, when COVID-19 was largely under control locally, Hong Kong’s gross domestic product (GDP) growth had recovered to 6.4 percent in 2021, following a 6.5 percent contraction in 2020. “The situation this year is very different, and at EY, we agree with the Financial Secretary that controlling the epidemic is key,” she says. Michael Chan FCPA, Chairman of the Institute’s Professional Accountants in Business Committee, described the budget as being very well-balanced. “It addresses both immediate needs and medium- to long-term ones, and the needs of individuals and those of companies. There are a lot of measures to reinvigorate the economy after the pandemic, as well as measures that pave the way for Hong Kong’s future competitiveness,” he says. 8 March 2022

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Budget 2022-23 HONG KONG ECONOMY 10 March 2022

APLUS Measures in this year’s budget include HK$10,000 in consumption vouchers to all Hong Kong residents; cash subsidies for small businesses; tax concessions to family offices based in Hong Kong; and the introduction of a top-up tax in Hong Kong, in line with the Base Erosion and Profit Shifting 2.0 Pillar Two’s global minimum tax initiative proposed by Organization for Economic Co-operation and Development. Supporting the community The budget contained a raft of measures to help support individuals through the current situation, including a second round of electronic consumption vouchers for permanent residents and new arrivals, valued at HK$10,000. “It is very generous, and it is double the amount they gave last year. The amount is appropriate, given the pandemic situation,” says Eugene Yeung CPA, Partner, Tax, at KPMG China and Convenor of the Institute’s Budget Proposals 2022/23 Sub-committee. Yee points out that alongside the consumption vouchers, cash subsidies were previously announced for businesses such as restaurants and beauty parlours, while a moratoriumwill be introduced to stop landlords from terminating tenancy agreements for businesses that fall behind with their rent. “These measures will help these businesses survive and hopefully preserve jobs for people on low incomes,” she says. Yee adds that the introduction of a progressive rating system for domestic properties from 2024-25, will see more affluent members of society with higher value properties pay more. Under the new system, the current flat rate of 5 percent will be replaced with a progressive rate of 5 percent, 8 percent or 12 percent depending on the annual rateable value of the property. Meanwhile, Yeung welcomed the announcement of the HK$100,000 tax deduction on domestic rental expenses, for which the Institute has been calling for a number of years, as it puts renters in the same position as homeowners, who can claim deductions for home loan interest. “It is not a big loss of revenue for the government, but it will be very helpful to people who rent their home,” he says. Despite the measures announced, Yeung still thinks low-income households may require more support, as this group is most likely to be struggling from the combination of higher expenses as a result of the pandemic and lost income. “There are tax relief and rates concessions, but people on low incomes may not benefit as they usually don’t pay tax,” he points out. Sarah Chan FCPA, Partner, Tax and Business Advisory Services, Deloitte China, and Chairman of the TFEC, agrees: “With the fifth wave of pandemic lasting for longer than expected, we are seeing businesses closing and people losing their jobs. I think the government could have introduced more concrete measures to help those who are most in need.” Boosting the economy Individuals were not the only ones to receive support in the budget, with the Financial Secretary also unveiling measures to strengthen the core pillars of Hong Kong’s economy. For financial services, he announced plans to offer tax concessions to family offices based in Hong Kong. Meanwhile, the tourism sector is set to receive HK$1.26 billion in support, and the logistics industry looks set to benefit from the continued development of sea-air cargo transhipment between the Hong Kong International Airport and the rest of the Greater Bay Area. Additional funding for agriculture and fisheries, trade and the arts sectors were also announced. Yee welcomed the news on family offices, pointing out that it would help to increase the attractiveness of Hong Kong as a financial centre, at a time when it faces growing competition from Singapore, and countries in Asia-Pacific such as Malaysia and Indonesia. “These new tax concessions will help to enhance Hong Kong’s relevance in the asset and wealth management space,” she says. Sarah Chan agrees, adding: “The government has started the consultation on the family office concession regime. I hope the draft rules can be finalized and discussed in Legislative Council (LegCo) very soon.” Significant support for the innovation and technology sector was also welcomed, including a further HK$10 billion to support the development of health technology and funding for the Hong Kong Growth Portfolio under the Future Fund to set up a HK$5 billion Strategic Tech Fund to invest in technology enterprises and projects with strategic value to Hong Kong. But with so many areas receiving funding, Yeung expressed concern that support was being spread too widely. “It may have been better to offer more concentrated support in fewer areas. I think it would be a good idea to reallocate some of the resources to supporting the younger generation’s career growth, such as talent development, graduate employment and supporting startups,” he says. Michael Chan also points out that while the support was welcome, the government must ensure the various funding schemes were easy for companies to access, particularly those targeted at small- and medium-sized enterprises (SMEs). He adds that having a single portal through which SMEs could find out which schemes they were eligible for and make applications to them would help to remove some of the hurdles smaller firms faced when accessing government funding. He gives the example of the Hong Kong Productivity Council’s portal through which SMEs can see what schemes they are eligible for at various stages based on a set of criteria. Aligning with international tax laws For many accountants, one of the most eye-catching measures included in the budget was the announcement that the government plans to start the legislative process to introduce a top-up tax in Hong Kong, in line with the Base Erosion and Profit Shifting (BEPS) 2.0 “These measures will help these businesses survive and hopefully preserve jobs for people on low incomes.” March 2022 11

Budget 2022-23 HONG KONG ECONOMY Pillar Two’s global minimum tax initiative proposed by Organization for Economic Co-operation and Development (OECD). “This topic has been a matter of concern for many large corporations and tax practitioners for years,” says Sarah Chan. “The proposed introduction of the top-up tax is not just to align us with the international tax environment, but it also provides the Hong Kong government with a source of tax revenue.” The government plans to put the relevant legislation before the LegCo later this year, with a view to introducing the domestic minimum top-up tax in the 2024-25 financial year. Yee says: “For them to clearly articulate this publicly shows the government’s concern about what is happening internationally around tax reforms and the OECD’s measures on a global minimum tax rate. In order for them not to lose any tax revenue, they will implement a domestic minimum tax rate of 15 percent in Hong Kong.” Sarah Chan adds that the government still needs to come up with a detailed plan on how the top-up tax will be imposed and how information will be exchanged with other tax jurisdictions in an efficient and timely way. Looking forward Aside frommeasures to help individuals and businesses in the short term, the budget also contained announcements to position the city for the medium and long term. It showed Hong Kong’s fiscal position has improved in the past 12 months, with the Financial Secretary estimating the city will record a budget surplus of HK$18.9 billion in 2021-22, ending two years of deficits. It looks set to return to a deficit of HK$56.3 billion in 2022-23 due to the cost of one-off relief and anti-pandemic measures, before returning to a surplus in the following three years, enabling fiscal reserves to exceed more than HK$1 trillion. Despite the forecast deficit for the coming year, Michael Chan says the budget shows the government is continuing with its adoption of an expansionary fiscal policy. “The initiatives to relieve people’s hardships, and enhance industry, economic resilience and infrastructure, all point towards an expansionary fiscal policy,” he says. Michael Chan points out that the government is also keen to establish a new city centre away fromHong Kong Island to the north to help new and emerging industries tap into the opportunities presented by the Greater Bay Area, with HK$100 billion set aside to fund the land, housing and transport infrastructure needed for the Northern Metropolis on the border with Mainland China. Significant funding is also being allocated to nurturing future talent across healthcare, financial services, construction, education and the arts. Meanwhile, Yeung highlighted Paul Chan’s remarks, where he pointed out that while the financial services industry contributes 23 percent of Hong Kong’s GDP, only 7 percent of residents are employed in this sector. This, he says, may be a signal that the government is looking to further diversify the economy going forward. Missed opportunities While the budget was widely welcomed by accountants, there were still a number of areas in which they thought measures were missing. One of the key features they would like to have seen included was a clear strategy to expand Hong Kong’s tax base. Yeung points out that the Financial Secretary’s revision of his previous forecast of a HK$101.6 billion deficit for the 2021-22 financial year to a surplus, was in part due to there being higher land sales during the year than previously anticipated, reflecting the issues associated with Hong Kong’s narrow tax base. “For a couple of years, the Institute has proposed that the government should revisit its revenue model and find ways to expand Hong Kong’s tax base. Right now, it is too dependent on direct taxation and land sales,” he says. Yeung adds that although he does not think new taxes should be introduced in the coming tax year while the economy is still being impacted by COVID-19, the government should start doing research and consult on ways in which to broaden the tax base. Yeung would also like to see the Inland Revenue Ordinance modernized. “Hong Kong’s tax laws were first written in the 1940s. We need to catch up and align with international tax rules and reforms,” he says. “We have things now, such as the Internet, e-commerce and telecoms, which did not exist when the tax laws were first written. We need to catch up and I hope the government can speed up its work in this area.” Sarah Chan thinks the Financial Secretary missed an opportunity by not introducing a mechanism to allow companies to carry back losses. “The past two years have been very challenging for SMEs, and many of them have made a loss. If they were allowed to utilize the losses to offset them against profits generated in previous years and receive a tax refund, it would definitely relieve both their tax burden and cash flow.” On the environmental front, the announcement that the government plans to issue green bonds totalling US$4.5 billion and retail green bonds worth at least HK$10 billion in the next financial year were welcomed. Meanwhile, although a further HK$1.5 billion was allocated to the EV-charging at Home Subsidy Scheme, Michael Chan would like to have seen more support for green “The proposed introduction of the top-up tax is not just to align us with the international tax environment, but it also provides the Hong Kong government with a source of tax revenue.” 12 March 2022

APLUS industries, such as recycling – particularly recycling electric vehicle batteries, given their popularity in recent years – to help Hong Kong meet its 2050 carbon neutrality target. “We need more subsidies to incentivize the replacement of public transport vehicles which are predominately aged and not environmentally friendly, and for exploring alternative fuel options, such as hydrogen. We need green taxes to incentivize good practices and resource conservation, as well as subsidies or tax deductions for companies deploying capital to make commercial and industrial buildings more environmentally friendly,” he says. Yee would like to have seen incentives or tax relief measures to help establish Hong Kong as an intellectual property hub. “I think we have all of the right commercial and economic factors that make it an attractive place for intellectual property, such as lawyers, talent and a strong intellectual property framework,” she says. Despite the current challenges, Yeung says the measures introduced in this year’s budget will meet Hong Kong’s current and future needs and aid the city in maintaining its relevance and status as an international financial centre. “The budget covers a lot of areas and includes short-termmeasures and relief, as well as a vision for the future and shows the government’s willingness to plan ahead,” he says. March 2022 13

BEYOND COMPLIANCE Photography by Raul Ariano To achieve strategic value for businesses and stakeholders, companies should have a principles-based approach to corporate governance, rather than a rules-based one. As an accountant, Ernest Lee FCPA (practising) knows this all too well. The President of the Hong Kong Chartered Governance Institute tells Jemelyn Yadao how he wants to broaden awareness of the role of governance professionals and how, by partnering with CPAs, they can support the drive for sustainability PROFILE Ernest Lee FCPA (practising) In January, the independent professional body that qualifies and represents governance professionals in Hong Kong and Mainland China, announced it had elected a new president – a proud CPA. “I’m very glad to be an accountant and a governance professional. The accounting qualification opens up a lot of opportunities for all of us,” says Ernest Lee FCPA (practising), President of the Hong Kong Chartered Governance Institute (HKCGI), and Technical Partner at Deloitte China. For Lee, it led to his career in technical advisory, which involved directly contributing to financial reporting standard setting locally and to the development of International Financial Reporting Standards (IFRSs). He was the chairman of the Hong Kong Institute of CPAs’ Financial Reporting Standards Committee (FRSC) for the past three years, an experience, he says, that taught him the importance of being aware of 14 March 2022

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PROFILE Ernest Lee FCPA (practising) baseline principles, whether as an auditor or a governance professional. “I saw the development of these principle-based standards that you have to follow in financial reporting. I think to be a successful governance professional, we need to really understand the rationale behind the rules for better governance, rather than just tick the box, because rules cannot spell out exactly what you need to do in every possible situation,” says Lee, speaking to A Plus while on a business trip in Shanghai. “Given the complexity of transactions and the business environment, companies have to apply principles rather than just follow the rules. So I believe that my experience as the chair of the FRSC was invaluable for me to further strengthen my desire to contribute to the development of governance professionals.” He also credits his time as FRSC chair for preparing him for his current role. Through the chairmanship, he was able to hone some crucial skills. “It required a lot of interaction with members of the committee, other stakeholders, including regulators, preparers and other standard setters from around the world, including the International Accounting Standards Board, so my organization and negotiation skills were developed through this. Another important attribute is the ability to listen and understand the needs and concerns of stakeholders. These kinds of attributes are very important for me as the president of HKCGI.” Key advisors With over 70 years of history, HKCGI is the Hong Kong/China division of the global Chartered Governance Institute (CGI), which was founded in 1891 in the United Kingdom as the Institute of Secretaries to represent the interests of the emerging profession of corporation secretaries. “The Hong Kong/China division is one of the fastest growing divisions of CGI, with over 10,000 members and students, and significant representations in many listed companies and cross-industry governance functions,” says Lee. He decided to take the HKCGI’s Chartered Governance Qualifying Programme examinations after qualifying as a CPA. He was admitted as an associate of HKCGI and CGI in 1997 and elected a Fellow in 2013. “The qualification has been invaluable in my career as a professional accountant and auditor. The broad range of subjects in the qualification process equipped me with a good understanding of corporate governance, including directors’ Ernest Lee FCPA (practising) was Chairman of the Institute’s Financial Reporting Standards Committee in 2019-2021, and was also a member of sub-committees such as Revenue Recognition Advisory Panel and Disclosure Initiative Advisory Panel. 16 March 2022

APLUS responsibilities and duties, risk management, as well as strategic management. So as a professional accountant, in addition to proper financial reporting, best corporate governance is always something on top of my mind. I strongly believe that better governance leads to a better future for all organizations.” Formerly known as The Hong Kong Institute of Chartered Secretaries, HKCGI took on its current name in July 2021 as part of a rebranding exercise. Lee says the rationale behind the name change was to raise awareness of the expanded roles of governance professionals, and how members – himself included – come from many different backgrounds. “In the old days, the role of many of our members had a focus on compliance, helping their organizations to meet the regulatory and compliance requirements. Given that we are currently in a highly dynamic environment, governance professionals have become key advisors to the board, which is interested in a much wider range of issues, including for example, gender diversity, risk management, sustainability, etc.,” Lee explains. “Governance professionals today continue to be experts in regulatory compliance, but they are also specialists who help organizations to look at the purpose of the business and how the business can serve the community.” Such a broader role and wider range of responsibilities are reflected in the composition of HKCGI’s membership and students in terms of their job titles and work activities, he adds. “Our new brand aims to reflect our unique position and critical role as the highly qualified experts in corporate governance in Hong Kong and Mainland China.” Focusing on purpose According to Lee, some listed companies in Hong Kong and Mainland China view the implementation of best practices in corporate governance as just a compliance issue, rather than a performance enhancement opportunity. “For listed companies and the governance professionals advising them, it is easier to take the box-ticking approach to complying with Hong Kong’s Corporate Governance Code (Code). Taking a principle-based approach requires a lot more thought and board involvement,” he says, adding that while this approach may be difficult, the benefits are huge. “In my mind, explaining how you have complied with the principles in the Code in your corporate governance reports gives you a lot more scope to shine. What I observe is that analysts and investors, especially institutional investors, do rely on companies’ corporate governance reports because they demonstrate how good your governance standards are.” While the tendency to view corporate governance as just a compliance issue still exists, Lee also observes a shift towards a stakeholder-responsive and purposeful approach to governance among some companies. “It’s certainly a trend that senior management of companies are not only focusing on short-term or even medium-term profitability. They are really looking more on the sustainability of the business. That requires what we call ’purposeful governance’ – the approach that focuses on what organizations can provide to the community, rather than what they can take from the community,” explains Lee. “I’m a very strong supporter of the trend towards purposeful governance.” To help equip governance practitioners with the relevant knowledge and enable them to support companies as part of this trend, HKCGI has developed practical guidance on purposeful governance. “The climate change conference that we held in January was a successful event where senior members of HKCGI teamed up with the Secretary for the Environment of the Hong Kong government. We also discussed climate-related issues with regulators at the Hong Kong Stock Exchange and industry leaders.” Lee also believes more can be done to address the long-standing issue of low representation of women on Hong Kong boards. He cites a review report released by the HKCGI last year titled Missing Opportunities? A Review of Gender Diversity on Hong Kong Boards, which calls for the Corporate Governance Code to be amended in six years to include a target of a minimum 30 percent female representation on boards. “The target will be voluntary, but only in a sense that it will be subject to a comply or explain regime,” Lee says. The report also reveals that as at July 2020, the proportion of women on boards of the Hang Seng Index 50 listed companies stood at 13.7 percent. In other words, only around one-in-seven directors are female directors. “Diversity on boards encourage better corporate governance because it is wellrecognized as contributing to more effective boards and better corporate performance. It matters because the under-representation of women on our boards fails to meet the standards of an international financial centre. If we don’t make full use of the talent available to serve on boards in Hong Kong, women miss the opportunity to develop their careers and serve the Hong Kong corporate community.” According to HKCGI’s report Missing Opportunities? A Review of Gender Diversity on Hong Kong Boards, 76 percent of the larger cap companies comprising the the Hang Seng Index (HSI) 50 listed companies has one woman on the board, as at July 2020. Of them, around half have more than one director, and some are executive directors. The remaining 24 percent of HSI 50 companies do not have women on boards. “ In my mind, explaining how you have complied with the principles in the Code in your corporate governance reports gives you a lot more scope to shine.” March 2022 17

PROFILE Ernest Lee FCPA (practising) Risk-conscious environments Lee says governance practitioners must continuously stay informed of the potential areas of threat, particularly as they are increasingly relied on to pivot organizations across various social and economic challenges. “It can be quite challenging, especially at this point in time, given the dynamics of different things, such as the COVID-19 crisis, political matters, and the war in Ukraine, which may have significant impact on, let’s say, the going concern of the company. As a governance professional, it is really important to grasp the different aspects that could impact on the company, and advise the board efficiently.” Fulfiling their evolving roles is another challenge for governance professionals, he says. HKCGI’s members advise not only on internal controls and regulatory compliance frameworks, but on diverse issues, including managing climate risk, setting environmental, social and governance (ESG) targets and adapting to the ever-changing expectations of their organization’s key stakeholders. “The listing rules and the Code make it clear that company secretaries are key governance advisors to the board and are responsible for updating the board on latest laws and regulations relevant to the company. Therefore, our roles have become a lot more complex in the global pursuit of good governance,” he says. Under a new Listing Rule effective from 3 July 2021, a company secretary is recognized as part of senior management in a listed company. “Moreover, as new technologies increasingly enable the administrative side of the role to be automated, the strategic side of the role has grown in importance,” he adds. HKCGI helps members stay on top of changes through its continuing professional development programmes, says Lee, with prominent topics now including board dynamics, risk management and sustainability. These include, for example, HKCGI’s Annual Corporate and Regulatory Update, an annual conference which attracts about 2,000 governance professionals to learn the latest development of regulatory and related requirements. Like the accounting profession, HKCGI is looking forward to seeing the first proposed standards of the newly created International Sustainability Standards Board (ISSB), the body formed to create a comprehensive global baseline of high-quality sustainability disclosure standards. “It will set some baseline principles to be followed – this approach is quite consistent with my experience as a standard setter in Hong Kong for financial reporting standards, as Hong Kong Financial Reporting Standards or IFRSs are principle-based rather than rule-based. The ISSB will certainly facilitate consistent and comparable disclosures on sustainability matters across different jurisdictions. Before the creation of the ISSB, there had been criticisms about the fragmented approach around standard setting in this area, which made it difficult for companies to follow and also for stakeholders to understand or compare the sustainability reports of different companies,” Lee says. He hopes that the first proposed standards will be ready on a timely basis for global public consultation. “ESG matters are now constantly topics on board agenda, and I believe that governance professionals are instrumental in promoting better governance for organizations in this area.” Working with accountants According to Lee, accountants have been in high demand since he was first considering potential career paths. “There was a very good stock market and an expansion of economic activities and market transactions, so the demand for professional accountants was huge, but I think this is still the case nowadays. We are very lucky to be professional accountants,” he says. He started his career at a Big Four firm as an auditor, during which he gained his CPA qualification. “At that time, I noted that many accountants in business did not only take up the role as financial controllers or finance directors, but many of them were also acting as the company secretaries of their organizations. I believed that gaining the professional qualification from HKCGI would bring me a competitive advantage if I later decided to develop my career in the business sector.” Ultimately, Lee decided to stay working at a firm, where his knowledge in governance allowed him to question the effectiveness of boards. “As auditors, we focus on advising our clients on ways to improve their internal and board processes. By having a good understanding of corporate governance, I am in a better position to help my clients to identify opportunities that could bring improvements to their internal and board processes,” he adds. Lee’s career changed course when he moved to the technical side, focusing on accounting and auditing standards and other relevant regulatory requirements, and eventually becoming Technical Partner at Deloitte China in 2017. One of the most memorable – and most chaotic – moments of his career was when he first joined the technical department at his previous firm 20 years ago. “My eldest daughter was born right before a client meeting! Luckily during that period, my colleagues were very supportive. I got to work with very “ A company secretary cannot replace an accountant, just as an accountant cannot replace a company secretary.” 18 March 2022

APLUS good teammates who generously covered some of my work to make it possible for me to cope with both work and family,” he recalls, adding that at the time, he was developing his technical expertise, while also adjusting to being a first-time father. Unsurprisingly, Lee believes that accountants have an important role to play in enhancing corporate governance standards within organizations, especially with the right mindset. “I think it’s important for accountants to believe that better governance would lead to a better future. I think what we believe in will certainly affect our actions. And this will have a positive impact, not only on the organizations we’re working in, but also the overall ESG environment, as better governance is key to corporate sustainability.” He encourages his fellow accountants to actively build on their governance skills and knowledge. “The HKCGI’s fasttrack professional route gives accountants the opportunity to join HKCGI by taking only two examination modules, and as members, they would be able to develop the skills and knowledge relating to corporate governance through events and seminars,” he says. The fast-track route is open to qualified accountants or lawyers with more than five years’ relevant post-qualifying experience. Lee believes that accountants and governance professionals can work together in various areas, for example in ESGmatters. “A governance professional cannot hope to be an expert in all areas relevant to governance. So a company secretary cannot replace an accountant, just as an accountant cannot replace a company secretary. Governance professionals need to bring relevant experience together to generate positive impacts for the company.” Inspired by his daughter, who is now a medical student, he likens the roles of governance professionals to family medicine specialists. “Family medicine specialists provide continuous and comprehensive healthcare for individuals but they call for the specific experience and knowledge of other specialist doctors when they need to. Governance professionals and company secretaries knowwhen to consult with an accountant or other parties.” Lee, Technical Partner of Deloitte China, is also an advisor to the Master of Accounting programme of Cambridge Judge Business School, University of Cambridge. March 2022 19

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