full_May_22

Issue 5 Volume 18 May 2022 DRIVING BUSINESS SUCCESS A NEW ERA OF REPORTING Emmanuel Faber, Chair of the International Sustainability Standards Board, on the global impact new standards will have on sustainability reporting INEDS A look at the increasingly complex role and responsibilities of independent non-executive directors SUPPLY CHAINS *QY DWUKPGUU ECP DGPGƂV HTQO a strong relationship between UWRRN[ EJCKP CPF ƂPCPEG VGCOU SECOND OPINIONS How will the ISSB’s two proposed standards meet the needs of investors? PLUS:

PRESIDENT’S MESSAGE APLUS May 2022 1 As we approach the mid-point of the year, we are finally seeing further easing when it comes to restrictions under the pandemic. With fingers crossed, we can all look forward to even less restrictions and more activities during the summer. For accountants, many will be keeping a keen eye on the developments of international environmental, social and governance (ESG) reporting standards this summer, with the International Sustainability Standards Board (ISSB) currently fielding its first two proposed standards for public consultation, which will end 29 July. In this issue of A Plus, we have the immense honour of featuring Emmanuel Faber, the inaugural Chair of the ISSB in an insightful profile where he speaks on his vision to lead the development of global ESG reporting standards. Interested readers should also be sure to pay attention to the Institute’s online survey seeking to collect stakeholder feedback on the ISSB’s exposure drafts, which will remain open until 13 June. The month of May has been eventful for the development of the accounting profession in Hong Kong. The government gazetted three pieces of subsidiary legislation for the commencement of the new regulatory regime of the profession, which were subsequently tabled in the Legislative Council (LegCo) for negative vetting on 11 May. The subsidiary legislations formally appoint 1 October 2022 as the commencement date for the new regime, and provides for other transitional arrangements in the meantime, as well as setting the fee levels for collection by the Accounting and Financial Reporting Council. Interested readers should visit the dedicated webpage on the Institute’s website for further details. On 13 May, the government gazetted the Professional Accountants (Amendment) Bill 2022 to revise the election arrangements of the Council of the Institute and make other technical changes. The Bill was then introduced into the LegCo for first and second reading on 18 May. The Financial Services and the Treasury Bureau has indicated before that they intend for the proposal to take effect before the 2022-end election. More details are available on the Institute’s dedicated webpage on the website. Members would have received the Institute’s clarifications regarding the recent discussions on the nonrenewal of the mutual recognition agreement (MRA) between the Institute and the United States International Qualifications Appraisal Board (IQAB), which will expire on 31 December 2022. The issue sparked speculation online which caused certain implications to be overstated. We expect the non-renewal to have minimal impact on our members; after all, few members make use of this MRA every year. To reiterate, the Institute and the IQAB could not come to an agreement to extend the agreement due to the precondition proposed by the IQAB. The precondition required the new MRA to waive the standard requirement for all IQAB accountants to have one year of local experience in order to obtain a practising certificate in Hong Kong, with audit experience solely obtained in the U.S. recognized instead. I hope our explanation on the matter will have answered members’ questions and quelled any concerns. The Institute remains a leading professional accounting body in the international community, and we will continue to work hard towards upholding the quality and values of the profession. I always find solace in seeing young talents looking to grow and exert a positive influence on their surroundings, especially within our excellent profession. In the past month, I delivered the welcome speech in the Institute’s V-fair 2022 event, our annual career fair for young aspiring CPAs. The virtual occasion featured sharing sessions from experienced leaders in the profession on the prospects of the profession and guidance on career paths to success with the CPA qualification. While we were not able to meet these talents in person, I am optimistic we will see many of them follow in the footsteps of so many brilliant CPAs before them in this ever evolving profession. I encourage our seasoned colleagues to share the video highlights of the event with the young people around them, and perhaps this might encourage them into a fulfilling career as a CPA. Read our article on the Institute’s Mentorship Programme on page 40, which offers a glimpse of how your experience can help nurture the profession’s leaders of tomorrow. Loretta Fong CPA (practising) President Dear members, “I hope our explanation on the matter will have answered members’ questions and quelled any concerns. The Institute remains a leading professional accounting body in the international community, and we will continue to work hard towards upholding the quality and values of the profession.”

CONTENTS Issue 5 Volume 18 May 2022 NEWS 01 President’s message 04 Institute news 07 Business news FEATURES 08 An outside perspective A look at the increasingly complex role of independent non-executive directors, and why corporate governance has to be a priority for them 14 Leadership: Emmanuel Faber The new Chair of the International Sustainability Standards Board on what new standards will mean for sustainability reporting 20 Strengthening the chain How can supply chain and finance teams work effectively together? 26 Second opinions How will the International Sustainability Standards Board’s two proposed standards meet the needs of investors? 28 How to Albert Lee, Global Co-Leader and Asia Pacific Leader, and Agnes Fok CPA, Director, of Tax Technology and Transformation, EY, on how companies can prepare for the implementation of BEPS 2.0 29 Thought leadership: Amir Ghandar The Chartered Accountants Australia and New Zealand’s Reporting and Assurance Leader, on how digital reporting will help companies reliably disclose both financial and nonfinancial information 30 Q&A with a PAIB Stephen Li CPA, Director, Public Markets Portfolio Management at Prosus 31 Q&A with a PAIP Gary Stevenson CPA, Head of IFRS/HKFRS and Technical Accounting at RSM Hong Kong 32 Meet the speaker What to expect from a webinar on debt restructuring 08An outside perspective There is an increase in CPAs taking on the role of independent nonexecutive directors (INEDs), who guide listed companies towards better corporate governance. What are some of the skills INEDs need today and how can CPAs prepare themselves now to succeed as tomorrow’s INEDs? 30 Q&A with a PAIB 31 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 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 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 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 SOURCE 33 Reviewing valuation reports in an audit A look at the procedures to an asset valuation that auditors should keep in mind when obtaining audit evidence 36 Technical news WORK-LIFE BALANCE 40 A powerful exchange Mentors and mentees in the Institute’s Mentorship Programme share how they have benefitted from the programme and the satisfaction that comes with guiding the way 46 Young member of the month Cynthia Chan CPA, Compliance Manager at a bank 48 After hours Institute members recommend their favourite ways to unwind 48 40A powerful exchange After hours A Plus is the official magazine of the Hong Kong Institute of Certified Public Accountants. The Institute retains copyright in all material published in the magazine. No part of this magazine may be reproduced without the permission of the Institute. The views expressed in the magazine are not necessarily shared by the Institute or the publisher. The Institute, the publisher and authors accept no responsibilities for loss resulting from any person acting, or refraining from acting, because of views expressed or advertisements appearing in the magazine. ©Hong Kong Institute of Certified Public Accountants May 2022. Print run: 6,950 copies The digital version is distributed to all 46,702 members, 17,136 students of the Institute and 2,358 business stakeholders every month. 20 Strengthening the chain Global crises are unavoidable, but having supply chain and finance teams working closely together can help mitigate the impact of disruption and strengthen a company’s resilence in the long term

NEWS Institute news Business news 4 May 2022 The results of the Institute’s ethics survey, which will be used by the Ethics Committee to inform and evolve the Institute’s ethics strategy and initiatives, is now available for members to read. The survey was conducted in 2021 to understand the ethical attitudes of professional accountants in Hong Kong and how the Code of Ethics for Professional Accountants (Revised) (the Code) contributes to their performance of professional activities. “The intention was for us to understand how the profession perceives the Code with regards to the relevant regulatory requirements. We were also interested to identify areas that have a higher risk of ethical non-compliance, as it helps us to focus any training we provide and any articles we issue,” Maria Xuereb CPA, Deputy Chair of the Ethics Committee, told A Plus in an ethics feature in the April 2022 issue. The survey found that 87 percent of respondents considered ethics to be very important in the accounting profession, and 70 percent of them believed ethics-related training should be included in mandatory continuing professional development for Institute members. However, despite the positive attitude towards ethics, less than half of all respondents (41 percent) undertook ethics-related training within the last year. Members can read the Ethics Survey 2021 report to find out more about the findings, including professional accountants’ perception of ethics, common ethical issues they face at work and their familiarity with the Code. It can be found on the Institute’s website. Non-renewal of MRA with IQAB The current mutual recognition agreement (MRA) between the Institute and the United States International Qualifications Appraisal Board (IQAB) will expire on 31 December. Refer to the Institute’s website to learn more about the background and implications of the non-renewal of the MRA. e-Manager discount The Institute is offering an exclusive 10 percent discount on 10 e-manager courses that have been curated to give members an edge as society gradually recovers from the latest COVID-19 outbreak. The courses cover interpersonal skills, business planning and strategy, and information technology competencies. This offer is available from now till August. Those interested must enrol by 31 August. Council meeting minutes The abridged minutes from the March and April Council meeting are now available in the “Members’ area” of the Institute’s website. Annual meeting with the IRD The annual meeting between representatives of the Institute’s Taxation Faculty Executive Committee and the Inland Revenue Department took place on 13 May. The meeting minutes of the meeting are available on the Institute’s website. Institute survey report highlights further need for ethics-related training

APLUS Resolution by agreement KPMG, Muk ChungWing CPA and Wong Sau Ling CPA Complaint: Failure or neglect by KPMG andMuk to observe, maintain or otherwise apply the fundamental principle of professional competence and due care in sections 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants; failure or neglect byWong to observe, maintain or otherwise apply Hong Kong Standard on Auditing (HKSA) 220 QualityControl for an Audit of Financial Statements. KPMG audited the consolidated financial statements of Merry GardenHoldings Limited (nowknown as China Environmental Technology and Bioenergy Holdings Limited), a Hong Kong listed company, and its subsidiaries for the year ended 31 December 2015. Mukwas the engagement partner andWongwas the engagement quality control reviewer. The Institute received a referral fromthe Financial Reporting Council (FRC) about deficiencies in the audit. The respondents failed to identify that earnings per share disclosed in the financial statementsweremisstated. Themisstatement had resulted fromerrors in calculating theweighted average number of shares outstanding after a bonus share issue and an open offer of shares made by the company during the year. 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 their non-compliancewith professional standards; 2. The respondents be reprimanded; and 3. KPMG, Muk andWong pay an administrative penalty of HK$50,000, HK$35,000 and HK$35,000 respectively to the Institute, and they jointly pay the costs of the Institute of HK$15,000 and of the FRC of HK$127,905.07. Disciplinary findings Li Sau Ying CPA (practising) Complaint: Failure or neglect to observe, maintain or otherwise apply Hong Kong Standard on Quality Control 1 QualityControl for Firms that PerformAudits andReviews of Financial Statements, andOther Assurance andRelatedServices Engagements; the fundamental principle of professional competence and due care in sections 100.5(c) and 130.1 of the Code of Ethics for Professional Accountants; and guilty of professional misconduct. Li operated a part-time practice in her own name. The practice was subject to its first practice review in February 2018, which identifiedmultiple deficiencies in the practice’s quality control system. In addition, Li was found to have adopted a flawed audit methodology, which demonstrated her failure to carry out audits with professional competence and due care. The practice review found that Li had inappropriately issued unmodified auditor’s reports on the financial statements of two clients, whenmodified opinions should have been issued for material omissions andmisstatements. She also issuedmodified auditor’s reports, including a disclaimer of opinion, on the financial statements of certain other clients in a deliberate attempt to avoid performing the necessary audit work. Decisions and reasons: The Disciplinary Committee ordered the cancellation of Li’s practising certificatewith no issuance of a practising certificate to her for 36months. In addition, Li was ordered to pay costs of disciplinary proceedings of HK$150,000. Whenmaking its decision, the committee took into consideration the particulars of the breaches committed in this case, Li's conduct throughout the proceedings and her personal circumstances. Li appealed the committee’s decision. Following the Court of Appeal’s dismissal of the appeal inMarch 2022, the practising certificate of Li was cancelledwith effect from8 April 2022. Chan Wai Dune, Charles CPA (practising), Teh Delores Eng-Hua CPA (practising), Yau Hok Hung CPA (practising) and CCIF CPA Limited Complaint: Failure or neglect by Chan and CCIF CPALimited to observe, maintain or otherwise apply HKSA 200 Objectives and General PrinciplesGoverning anAudit of Financial Statements, HKSA 315 Understanding the Entity and Its Environment and Assessing theRisks ofMaterial Misstatement, HKSA 330 The Auditor’s Procedures inResponse toAssessedRisks andHKSA500 Audit Evidence. Failure or neglect by Teh and CCIF CPALimited to observe, maintain or otherwise apply HKSA 200 (Revised) Objective andGeneral PrinciplesGoverning anAudit of Financial Statements, HKSA 500 andHKSA 530 Audit Sampling andOther Means of Testing. Failure or neglect by Yau and CCIF CPALimited to observe, maintain or otherwise apply HKSA 200 (Revised), HKSA 230 Audit Documentation, HKSA 500 andHKSA 530. CCIF CPALimited expressed unmodified auditor’s opinions on the consolidated financial statements of First Natural Foods Holdings Limited (nowknown as Imperial Pacific International Holdings Limited, a Hong Kong listed company, and its subsidiaries (collectively, group) for each of the years ended 31 December 2005, 2006 and 2007. Chan, Teh and Yauwere the engagement directors of the 2005, 2006 and 2007 audits, respectively. The Institute received a referral fromthe FRC about deficiencies found in one ormore of the audits. The deficiencies included failures to carry out audit planning and risk assessment on revenue, to properly evaluate evidence of revenue obtained fromcertain partieswho had apparently acted only as agents for ultimate customers, and to assess the impact of themain customer’s recurring non-response to audit confirmation requests sent to it. In addition, the audit team failed to ensure the completeness of population of revenue fromwhich samples were drawn for testing, and to adequately document certain audit procedures performed. Decisions and reasons: The Disciplinary Committee reprimanded the respondents. In addition, Chan, Teh, Yau and CCIF CPALimitedwere ordered to pay penalties of HK$200,000, HK$150,000, HK$150,000 andHK$300,000 respectively, and to jointly pay HK$493,881 towards the costs of the Institute and the FRC. Whenmaking its decision, the committee considered that the case involved significant deficiencies, and that it reflected the respondents’ lack of professional scepticism in auditing the May 2022 5

6 May 2022 group’s revenue, as a significant volume of transactionswere madewith the non-responding customer over a number of years. Zenith CPA Limited, Cheng Po Yuen CPA (practising) and YamWai Man CPA (practising) Complaint: Failure or neglect by Zenith CPALimited and Cheng to observe, maintain or otherwise apply HKSA 200 (Clarified) Overall Objectives of the Independent Auditor and theConduct of anAudit inAccordancewithHongKongStandards onAuditing, HKSA 260 (Clarified) CommunicationwithThoseChargedwith Governance and HKSA 500 Audit Evidence. Failure or neglect by Yamto observe, maintain or otherwise apply HKSA 220 (Clarified) QualityControl for anAudit of Financial Statements. Zenith CPALimited expressed unmodified auditor’s opinions on the consolidated financial statements of Simsen International Corporation Limited (nowknown as Huarong International Financial Holdings Limited), a Hong Kong listed company, and its subsidiaries for the financial years ended 30April 2014 and 2015. Chengwas the engagement director and Yamwas the engagement quality control reviewer of the audits. The Institute received a referral fromthe FRC concerning the deficiencies related to the audits of (i) assets and liabilities held for distribution to owners and discontinued operations; (ii) impairment assessment of available-for-sale investments; (iii) accounting for a convertible note; and (iv) impairment assessment of loans and accounts receivable and finance leases receivable. Decisions and reasons: The Disciplinary Committee reprimanded the respondents. The committee further ordered the cancellation of Cheng’s practising certificate, with no issuance of a practising certificate to him for sixmonths, with effect from19May 2022. In addition, the committee ordered Zenith CPALimited, Cheng, and Yamto pay penalties of HK$200,000, HK$200,000 and HK$50,000 respectively, and to jointly pay HK$397,815 towards the costs of the Institute and the FRC. Whenmaking its decision, the committee took into consideration the particulars in support of the complaints, the respondents’ personal circumstances and the conduct of the respondents throughout the proceedings. Settlements Chu Ngar Yee CPA (practising) The Institute has settled regulatory proceedings concerning alleged non-compliance of its professional standards involving Chu Ngar Yee CPA (practising). The complaint concerns deficiencies in KPMG’s audit of the financial statements of a private company for the year ended 31 December 2019, which were identified in the Institute’s practice review of the firm in 2021. KPMG issued an unmodified auditor’s opinion on the financial statements. Chu was the engagement partner of the audit. The deficiencies related to audit procedures carried out on goodwill included in the financial statements, which was materially misstated. The practice review found that Chu failed to: • Design and performaudit procedures to obtain sufficient appropriate audit evidence for the goodwill; • Take steps to resolve inconsistencies in the audit evidence obtained; and • Obtain reasonable assurance that the entity’s 2019 financial statements as awholewere free frommaterial misstatements. As a result of the above, Chu failed or neglected to observe, maintain or otherwise apply HKSA 500 Audit Evidence and HKSA 700 Forming anOpinion andReporting on Financial Statements. Settlement agreement: The Council has agreedwith Chu that: 1. Chu acknowledges the facts of the case and areas of noncompliancewith professional standards; 2. Chu be reprimanded; and 3. Chu pays a financial penalty of HK$100,000 and costs of HK$60,000. Chow Tsz Ki CPA (practising) The Insitute has settled regulatory proceedingswith ChowTsz Ki, CPA (practising) concerning alleged non-compliancewith professional standards. The complaint concerns deficiencies in Deloitte Touche Tohmatsu’s audit of the financial statements of a private company for the year ended 31 December 2018, which were identified in the Institute’s practice review of the firm in 2020. Deloitte expressed an unmodified auditor’s opinion on the financial statements and Chowwas the engagement partner of the audit. The practice reviewer found that the audit team failed to performsufficient audit procedures pertaining to the following: • The company’s advance receipts fromcustomers; • Certain excess receipts fromcustomers and discounts from suppliers being recognized in income; and • The impact those receipts and discountswould have on forecasted cash flows, which formed a basis for evaluating goodwill impairment. As a result of the above, Chow failed or neglected to observe, maintain or otherwise apply HKSA 500 Audit Evidence and HKSA 520 Analytical Procedures. Settlement agreement: The Council has agreed with Chow that: 1. Chow acknowledges the facts of the case and areas of noncompliance with professional standards; 2. Chow be reprimanded; and 3. Chow pays a financial penalty of HK$75,000 and costs of HK$60,000. The Institute considers settlements on the agreed basis to be in the public interest. In the circumstances, the Institute is satisfied that there is no purpose to be served in pursuing disciplinary proceedings. Details of the resolution by agreement, disciplinary findings and settlements are available on the Institute’s website.

NEWS Business The locations of two additional offices Hong Kong Exchanges and Clearing (HKEX) will establish over the next year. The move, announced by Chief Executive Officer Nicolas Aguzin this month, hopes to attract more overseas investors and market the city as a fundraising destination. It will be the first overseas offices outside Asia for HKEX, which already has a presence in Beijing, Shanghai and Singapore. 20% The percentage of employees in various industries who noted they are likely to switch jobs in the next 12 months, according to PwC’s Global Workforce Hopes and Fears Survey 2022, which surveyed more than 52,000 workers in 44 countries. The firm said that higher pay, more job fulfillment and wanting to be “truly themselves” at work are the factors pushing employees to change jobs. US$5.5 million The total fine chipmaker Nvidia agreed to pay this month over allegations that the company failed to disclose that cryptomining was a significant element of its material revenue growth from the sale of its graphics processing units designed and marketed for gaming. The Fraud Lens – Interactions Between ISA 240 and Other ISAs The title of a non-authoritative guidance issued by the International Auditing and Assurance Standards Board this month. The guidance illustrates the relationship and linkages between the captioned auditing standard and other ISAs when planning and performing an audit engagement and reporting thereon. £3.4 million The total KPMG in the United Kingdom was fined by the U.K. regulator, Financial Reporting Council, this month. The firm was penalized for failings in its audit of British jet engine manufacturer Rolls-Royce’s 2010 accounts. In 2017, the company agreed to pay £671 million in penalties after investigations into claims it paid bribes to land export contracts. Hong Kong’s gross domestic product fell by 4 percent in the January to March period this year. The contraction, which was higher than the median estimate of 1.3 percent in a Bloomberg survey, is the biggest contraction since the third quarter of 2020. Factors such as the city’s fifth wave of COVID-19 and resultant restrictions, along with disruptions in crossborder trade, contributed to the lacklustre economic performance. May 2022 7 The amount that was wiped off cryptocurrency exchanges after Luna, a popular crypto token, collapsed this month. The collapse, in what research company CryptoCompare called “the largest destruction of wealth in this amount of time in a single project in crypto’s history” has focused the attention on standards crypto exchanges apply when they decide to list a coin. e-HKD: A policy and design perspective The title of a discussion paper issued by the Hong Kong Monetary Authority (HKMA) inviting views from the public and the financial industry on key policy and design issues for introducing a retail central bank digital currency (e-HKD). The HKMA has not yet made a decision on whether or when to introduce e-HKD. “There is currently a wide range of what asset managers might mean by certain terms and what criteria they might use. It is easy to tell if milk is fat free. It might be time to make it easier to tell whether a fund is really what they say they are.” – Gary Gensler, Chair of the United States Securities and Exchange Commission (SEC), said. The SEC is preparing to crack down on inflated environmental, social and governance (ESG) credentials in investment products and introduce rules that combat greenwashing. The rules would require investment funds to disclose how ESG funds are marketed and how ESG is incorporated into investing, reports the Financial Times. Europe and the U.S. US$40 billion

Independent non-executive directors CORPORATE GOVERNANCE When Steve Au FCPA decided to become an independent non-executive director (INED) shortly after retiring, he saw it as an ideal opportunity to put his experience in accounting and finance, as well as his CPA knowledge, to good use. “If you’re in a later stage of your career, and you have diverse experience, the role is a great way to help companies,” says Au, an INED for Vincent Medical Holdings Ltd. and Expert Systems Holdings Ltd. Though the INED role, he adds, isn’t solely for professionals who are retired or considering retiring, it is a meaningful way to keep busy and add value to companies. “As an INED for a manufacturer of medical equipment and also for an IT systems company, I’m able to learn new things on the job. The benefits are mutual.” Considered a natural progression for many accountants as they become more senior, the INED role is fully independent from a company, but is invited by the board to provide impartial, objective, and constructive advice regarding their strategy and corporate governance. INEDs also take into account the interests of the board and the company’s stakeholders and shareholders. In Hong Kong, listed companies listed on the Main Board of the Hong Kong Stock Exchange are required to have at least three INEDs on the board of directors, according to the Chapter 3 of the Hong Kong Exchanges and Clearing’s (HKEX) Listing Rules. The rules also state that INEDs must make up a third of the board of directors and that at least one of AN OUTSIDE PERSPECTIVE Every listed company in Hong Kong requires independent and impartial advice to ensure it is being managed correctly – a need that calls for an independent non-executive director (INED). Jeremy Chan speaks to Institute members who have taken up the role of INEDs and finds out how increased regulation has added new layers of complexity to the role over the last decade, and why INEDs today need the right industry experience and people skills to work effectively with any board, and ensure a high standard of corporate governance in any organization Illustrations by Gianfranco Bonadies 8 May 2022

APLUS May 2022 9

Independent non-executive directors CORPORATE GOVERNANCE the INEDs must have appropriate professional qualifications in accounting or related financial management expertise. This is one reason why becoming an INED is a viable career goal for many CPAs, notes Randy Hung FCPA. “CPAs have many advantages as INED candidates. First of all, they could well become the audit committee chairman or member, as their knowledge will help the board with financial matters,” says Hung, who has previously served as an INED for various companies such as IPE Group, Zhongyu Gas Holdings Ltd., Zhongtian International Ltd. and ZZ Node Holdings Company Ltd. “CPAs who have worked in audit should have the right exposure to different industries, which is a huge plus for the INED role.” Hung notes that there has been an increase in CPAs looking to become INEDs in recent years, with reasons such as career development, added flexibility and better credentials pushing accountants to vie for the role. “Being an INED allows a CPA to tap into an industry in terms of knowledge, experience and connections, and open up a new area of practice or career opportunities. Associating with listed companies is considered as a ‘professional credential’ too,” he says, adding that INEDs often help listed companies with transactional matters. “INEDs could become a referrer or advisor to recommend the appointment of professional firms to the listed companies in hopes that these appointed firms will reciprocally refer business or career opportunities to the INEDs.” There is also increased demand for INEDs in general. On 1 January, the HKEX’s revised Corporate Governance Code and Listing Rules came into effect, raising the corporate governance bar for both listed companies and INEDs. The amended rules require issuers to appoint a new INED if their current INEDs have served on the board for more than nine years, and additional disclosures have to be made on why long-serving INEDs are still independent and should be re-elected. To enforce board diversity, the rules also require issuers to appoint a director of a different gender no later than 31 December 2024, with additional disclosures to be made on gender diversity in the workforce. To help issuers comply, the HKEX published Corporate Governance Guide for Boards and Directors in December 2021. A role overseeing controls The role of an INED is unique. It calls for individuals who have the right industry knowledge and connections to provide direction to the companies they serve, and build strong relationships with 10 May 2022

APLUS the company management and employees – all while remaining independent. This makes the role ideal for professionals who are in a later stage in their career, as they are more likely to have established an extensive network of connections in different industries that they can tap into to advise the board. “It’s an ideal role, because by the time you’re an INED, you have more career experience. It is a chance to reach another stage in your career,” says Vanessa Chan FCPA, who is an INED for Innovax Holdings Ltd. and Tycoon Group Holdings Ltd. “You also have a chance to broaden your horizons, meet people from different backgrounds and businesses, and provide advice on the strategy and policies of a company. It’s a chance to look at a company from a bird’s eye view.” It is worth noting that the roles and responsibilities of an INED differ from those of a non-executive director (NED), who, in most cases, has previously worked with the company, and taken on a nonexecutive role to continue providing advice. “Most NEDs are already known to the company; they could be former executive directors or senior management who have now retired but are retained by the remaining management to give advice to the company from time to time, on a non-executive basis,” explains Paul Cheng FCPA, who is an INED at Bank of Shanghai (Hong Kong) Ltd. INEDs are not involved in the day-to-day operations of a company, highlights Au. “It’s not our role to ‘police’ companies; we have to ask the right questions and offer management advice from the perspective of an outsider to help their strategy, internal controls, business development and what risks to manage.” INEDs who are CPAs are, in most cases, assigned to chair a listed company’s audit committee, and also participate in other board committees including the nomination committee, remuneration committee and risk management committee. “The audit committee is responsible for overseeing the financials, risk management and internal control of the company,” notes Chan, who is a committee chairman for the two companies she serves as an INED. “We also hold regular meetings with both external and internal auditors to discuss the performance of a company and assess whether internal controls have been put in place.” Working with increased regulation Amendments to the HKEX’s Corporate Governance Code and Listing Rules have made the role more complex, Chan points out. “Because of the increasing complexity of the requirements under the Listing Rules, INEDs are obligated to encourage the chairman and senior management of a company to comply – and to ensure that the company complies with the regulations genuinely,” she says. In another example of increased regulatory requirements impacting the board, including INEDs, Hung highlights Part XIVA of the Securities and Futures Commission’s (SFC) Securities and Futures Ordinance, which came into effect on 1 January 2013, making it mandatory for listed corporations to disclose price sensitive, or “inside” information. “It’s a very powerful provision. If the company has inside information that they don’t announce as soon as it is practical, then the SFC has the power to penalize the company in the form of fines or disqualify board members, including INEDs. I’ve seen this happen before,” says Hung. Since INEDs bear the same level of responsibility as other board members, it is paramount for INEDs to ensure they have an accurate picture of the company and address any issues at hand, before they escalate. “There is now more intense regulatory scrutiny. A decade ago, the SFC usually acted behind the scenes, but now they are more of a frontline regulator. They would not hesitate to investigate or prosecute those suspected of wrongdoing. This, unfortunately, has landed some INEDs in trouble,” he says. “So now, INEDs may be involved in court cases if company directors are charged with wrongdoing. This has made the role riskier and more complex.” To help the company stay out of trouble, Hung advises INEDs to take all the necessary steps to understand the company inside and out. “You have to be very proactive in wanting to understand the company and think of what you can do to protect it,” Hung says. “This experience taught me how to be a better INED and helps me to train people as well.” INEDs have to be especially wary of companies that have just gone public, adds Chan. “There have been a few cases of irregularities or malpractice seen in companies, especially in ones that have just been listed.” she says. “So it’s been important for INEDs to continuously perform in-depth reviews of the company’s performance and be vigilant.” Ensuring better corporate governance The independent nature of INEDs and the fact that they typically serve on various board committees puts them in an advantageous position to help with a company’s corporate governance. “As INEDs, we don’t have a stake in the company. With this independence, we are able to bring a fresh or different perspective to ensure companies follow best practices in terms of corporate governance,” says Au. As Chan notes, corporate governance has risen in importance in recent years, as a result of “Because of the increasing complexity of the requirements under the Listing Rules, INEDs are obligated to encourage the chairman and senior management of a company to comply.” May 2022 11

Independent non-executive directors CORPORATE GOVERNANCE investors and analysts seeking a clearer picture of a company’s overall performance and whether its current practices will lead to sustainable growth and returns. “As INEDs, we need to question the long-term integrity of the board and chairman, and whether the company has the appropriate policies or guidelines in place to run the business. We also look at whether it has any contingency or succession plans, or whether there is frequent communication with external and internal stakeholders, and communication between board members and senior management.” INEDs should utilize their position on company board committees to push for better corporate governance, Cheng notes. Of particular importance, he adds, is ensuring transparency around how directors are nominated, and how their remuneration and bonuses are determined, which is a function of the nomination committee and the remuneration committee, respectively. “There needs to be someone independent of company manangement and controlling shareholders to ensure any nomination for board appointment is in the best interests of the company and shareholders, and that the remuneration awarded to the directors is fair and reasonable,” explains Cheng. “For example when considering awarding directors year-end bonuses based on their performance, there needs to be someone independent to determine whether the basis for such awards has supporting merits and the amounts to be awarded are reasonable, and are in line with the prevailing market practices. The persons expected by shareholders or stakeholders to do this job with the least conflict of interests are the INEDs, because of their independence frommanagement and controlling shareholders. These are key requirements among those defining ‘independence’ as stipulated in HKEX’s Listing Rules.” However, with no written rules in place for both management and INEDs to discuss corporate governance, it is up to INEDs to take the initiative in discussing corporate governance with the board and shareholders, Hung notes. “Corporate governance, in my opinion, is a bit like having effective internal controls – but among board members. The question is how one can control or contain the power of a majority shareholder and the chief executive officer or chief financial officer. There needs to be a good set of rules established among the board – but these rules generally do not exist,” he explains, stressing that improving corporate governance within an organization should be an INED’s number one priority. “INEDs should have a timetable or schedule in terms of what they aim to achieve and then be able to convince the board to go with the plan.” A vital head start The complex role of an INED calls for individuals with adept people skills, and those who can strike a balance between being articulate, honest and considerate. “Many executive directors simply aren’t used to having outsiders during board meetings, and so some of them may feel uncomfortable when we ask critical questions,” notes Au. “So while it’s important that we probe the directors on the intricacies of the company’s operations, we can’t be overly critical or harsh.” Chan agrees, noting that communication, problem-solving and analytical skills are essential to be an effective INED. “You can’t just question everything; you have to be able to look at issues and ask yourself whether they are beneficial to the shareholders or company,” she says. While the Listing Rules call for a minimum of four board meetings a year, INEDs are advised to be proactive in scheduling frequent formal and informal meetings with the board to build a strong relationship with all members of management. This, Au highlights, will lay a solid foundation for a healthy, long-termworking relationship between INEDs and the board, facilitate an honest exchange of feedback and, most importantly, establish trust. “We have to emphasize to executives that as INEDs, we are acting in the interests of the company and its stakeholders,” he says. “Executives may get into the nitty-gritty details of certain aspects about the company during board meetings and oftentimes, as INEDs, we are unfamiliar about what they’re talking about. At the same time, it is our role to monitor their strategy and how they deliver it. This requires asking questions that have been carefully thought out.” Hung says that INEDs shouldn’t shy away from getting to know board members outside of the office, noting that INEDs should make the most of one-on-one time to build trust and rapport, and to communicate on any sensitive matters. “INEDs should aim to take time to speak privately with individual members of management, especially those who have influence in the company. Instead of challenging them, they should first aim to fully understand any issues at hand first. And when it comes to solving issues, INEDs have to be tactful and polite,” he stresses. “My advice is to never bring up sensitive issues during board meetings, unless they have been discussed individually with the members.” Hung adds that current and prospective INEDs should always remind themselves about what they want to achieve in the role. “I wouldn’t say age or experience matter the most. What matters is why you chose to become an INED in the first place,” he says. “Some “As an INED, you’re ŻűąøĪƹøÚŁŁƧɷŵąŻűŒŊŻĪöŁąɷ for upholding corporate governance, which includes compliance – and as CPAs, we have this compliance culture in our blood.” 12 May 2022

APLUS might only become an INED just for the name or the money, but it isn’t a good enough reason. They have to ask themselves what they want to accomplish, what changes they hope to see, how they will improve corporate governance and why they are helping this particular company.” Cheng points out that CPAs have a head start in terms of the prerequisite skills needed to be an INED. “As an INED, you’re specifically responsible for upholding corporate governance, which includes compliance – and as CPAs, we have this compliance culture in our blood,” he says, noting that helping with corporate governance is similar to doing an audit, as it involves a thorough understanding of a business. “CPAs always strive to understand a business before we set our audit programme, which in most cases, involves employing a risk-based approach.” Actual experience working with a board, Au highlights, can benefit CPAs who wish to become INEDs. “Back when I was a CFO, I learned how to handle board situations. I also saw how INEDs used to critique and question us. This helped tremendously,” he says. “So now that I’m an INED, I know how to ask the right questions and in a way that will help and won’t upset management.” A trusted advisor The INED role, Au adds, is wellsuited for those who are retired but still looking to contribute to a company’s success. “I think all CPAs should give thought to becoming an INED. It’s an interesting role and very different from a regular fulltime job,” he says. “The job can offer you a lot of perspectives and allow you to build connections with people in different industries.” Chan says the most rewarding aspect of the INED role is being able to sit at the highest level of a company and drive company growth. “It’s fulfilling to be involved in setting the strategy along with the board, attend meetings to discuss the business plan, mission, growth strategy and then make recommendations to the board,” she says. “We have to look at all aspects of the company and consider many factors beyond the finances.” Being seen as a trusted member of the board, Hung concludes, makes the INED role worth pursuing. “The real satisfaction comes from knowing that you are working well together with the board, and as a team,” he says. “You can feel it, especially when the executive director comes to speak to you about other things beyond what’s expected of you as an INED. You then realize that you have become a key advisor to the board.” According to the Chapter 3 of the Hong Kong Exchanges and Clearing’s Listing Rules, INEDs must make up a third of the board of directors and that at least one of the INEDs must have appropriate professional qualifications in accounting or related financial management expertise. May 2022 13

PROFILE Emmanuel Faber A NEW STANDARD OF SUSTAINABILITY 0ver the years, investors and companies have watched the much-talked-about “alphabet soup” thicken. The array of environmental, social and governance (ESG) reporting standards, frameworks and ratings trying to shape how companies measure and disclose their sustainability performance has created fragmentation in reporting and much confusion. It is no wonder, then, why the announcement made by Erkki Liikanen, Chair of the International Financial Reporting Standards (IFRS) Foundation Trustees, at COP26 on 3 November 2021 attracted a lot of attention from around the world. He announced the formation of the International Sustainability Standards Board (ISSB) to develop a comprehensive global baseline of sustainability-related disclosure standards for the financial markets, which would bring clarity to sustainability reporting. It will be up to each jurisdiction to decide whether and how to incorporate the global baseline into their own requirements. The board will also consolidate two investor-focused international sustainability standard setters, the Value Reporting Foundation (VRF), and the Climate Disclosure Standards Board (CDSB), Liikanen told the audience in Glasgow. The next month, Emmanuel Faber was appointed the board’s inaugural Chair, leading the development of ESG reporting standards that inform global capital allocations, market prices and cost of capital. “Over the past several decades, global capital markets shaped a period of unprecedented change. The transition to a climate-resilient economy, within socially acceptable boundaries, will not happen without the necessary tools for markets to create further systemic change. This will happen through a shift of capital allocation, informed by a shared understanding of what is at stake for companies in this transition. Providing consistent language for this dialogue is our mission at the ISSB,” says Faber, who took on his new role in January. A long-time advocate of sustainable business, Faber is the former chief executive officer of food products company Danone, and is well-known for driving a number of sustainable initiatives during 14 May 2022

APLUS Since the new body was announced, all eyes have been on the International Sustainability Standards Board (ISSB) to see how it will establish standards for environmental, social and governance reporting and bring an end to gaps in sustainability reporting worldwide. Emmanuel Faber, Chair of the ISSB, tells Jemelyn Yadao about the priorities of the board this year, what it will take for the standards to become the global norm, and the role of the profession in reducing greenwashing May 2022 15

PROFILE Emmanuel Faber his tenure there. These include implementing voluntary reporting of “carbon adjusted” earnings per share, which is a profitability metric that accounted for the offset cost of Danone’s entire carbon footprint. The company was recognized as a global environmental leader, becoming one of only 10 companies with a “triple A” score in 2020 by Carbon Disclosure Project, the international nonprofit that helps companies and cities disclose their environmental impact. “It is truly a great privilege to have been appointed as the Chair of the ISSB. Throughout my career as a CEO, I placed sustainability at the heart of business strategy,” says Faber. “I did this not just because I think it is necessary for society and the environment, but because first and foremost, I trust it benefits the long-term success and resilience of the company.” From prototype to proposals The ISSB is moving quickly with its ambitious work plan. At the end of March, it published its first two proposed standards for public consultation. One sets out general sustainability-related disclosure requirements, and the other specifies climate-related disclosure requirements. Faber calls on all stakeholders to get involved and comment on the proposals. “I strongly encourage readers to review these and provide us with your thoughts,” says Faber. “This feedback will help to ensure our standards are of the highest quality and are such that their adoption will allow companies to report in a cost-effective manner and investors to make capital allocation decisions on their basis.” The 120-day consultation period ends 29 July. The ISSB aims to issue the final standards by the end of the year, subject to the feedback. The exposure drafts are built on the prototype climate and general disclosure requirements, which were also announced during COP26, and developed by the Technical Readiness Working Group (TRWG), a group formed by the IFRS Foundation Trustees to provide a running start for the ISSB. Representatives of the CDSB, the International Accounting Standards Board (IASB), the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), the VRF and the World Economic Forum had worked together to come up with the prototypes. Faber says the work done by the TRWG was invaluable and brought together various frameworks and standards. “It gave us a very solid base on which to start our work. Feedback from the market was clear: don’t start from scratch, build on what already exists. The TRWG enabled us to do that and gave us strong momentum that allowed us to produce our draft proposals in the first quarter of this year.” He adds that the CDSB Framework and TCFD recommendations are incorporated into the draft climaterelated disclosures standard and the industry-based requirements are based on Sustainability Accounting Standards Board (SASB) Standards. “Ultimately, SASB Standards will evolve into IFRS Sustainability Disclosure Standards.” The incorporation of the VRF, bringing with it the International Integrated Reporting Framework and SASB Standards, will take place by the end of June. Another key focus for this year is the search for the remaining 12 members of the ISSB, says Faber. Following his appointment, Sue Lloyd, previously IASB’s vicechair, was named Vice-Chair of the new board. “It is encouraging to see the quality of applicants we have been receiving,” says Faber, adding that the board is approaching the appointments in stages, with initial nominations being announced soon. “This is to ensure we have a quorum of board members in place and ready to deliberate on the feedback received through our consultation, and finalize the first two IFRS Sustainability Disclosure Standards.” The board is taking a “climate first, not climate only” approach for its strategic direction, recognizing the urgent issue of climate change. This has led to observers questioning how the ISSB will tackle the challenge of moving into the other areas of ESG. Faber believes a consultative process focused on meeting the needs of the global markets will reveal what the next steps should be. The board will launch a public consultation on its future standardsetting priorities later this year, he says. “This is a fundamental tenet of the IFRS Foundation and will clearly continue to be the case as we look to our next areas of work. I have my own views based on my experience as a CEO, and based on what the climate standard is likely to naturally request as a follow up, but ultimately, it’s for the board to deliberate on this and we’ll look to our network of stakeholders to guide us through consultation.” Complementing the IASB The ISSB sits alongside the IASB, with both boards overseen by the IFRS Foundation Trustees. While both are independent, the two boards will work closely with each other, ensuring compatibility between IFRS accounting standards and the ISSB’s standards. With IFRS standards now adopted by 166 jurisdictions, the ambition is for ISSB’s standards to have similar success. To have that, the ISSB can learn a lot from the IASB, including on overcoming the challenges of achieving The Institute has launched an online survey to collect stakeholder feedback on the ISSB’s exposure drafts on its proposed standards on general sustainabilityrelated disclosures and climate-related disclosures. The survey includes questions that specifically cater for the Hong Kong context. The results of the survey will be used by the Institute to develop its response to the ISSB. The survey is open until 13 June. 16 May 2022

RkJQdWJsaXNoZXIy MTY3NjcxMA==