AB MY (Malaysia edition) – May 2012

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the magazine for business and finance professionals accounting and business malaysia 05/2012

shAreD serviCes

penang forum looks ahead

new frAmework malaysian financial reporting standards

ACCA’s globAl forums Vital roleCPD annual reports

A CAll to CAre accountant turned Volunteer Wong koei onn on helping others

sme suPPort better times ahead?

Deloitte olympics’ adViserPrACtiCe auditor rotation

MY_cover.indd 1 17/04/2012 12:05

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TIME TO ROTATE?With calls to introduce mandatory auditor rotation, evidence suggests that it may cause more problems than it solves. Page 40

RIGHT ON TRACKShared services and outsourcing is like a bullet train picking up speed, delegates at an ACCA Accountants for Business Forum heard. Page 54

EXPERT INSIGHTS

Join ACCA and KPMG for a free, one-hour webinar as we explore how the finance transformation agenda is evolving through shared services and outsourcing.www.accaglobal.com/virtual

BIG AMBITIONS?For your next career move check out www.accacareers.com

Wong Koei Onn FCCA freely admits that his decision to embark on a career in accountancy was made in haste. But the practising Buddhist has since put his skills to good use, most recently as a hospice volunteer and voluntary treasurer. See page 12

BUILDING BETTER BOARDSThe Olympus Corp US$1.7bn accounting scandal has been headline news around the world since it blew up last October. Since then, revelations about alleged financial shenanigans by some current and former board members of the Japanese digital camera and electronic equipment maker have made for riveting reading, to say the least.

Closer to home, a couple of listed companies have also recently been in the spotlight for all the wrong reasons, with reports of financial irregularities and moves to remove key board members unnerving stakeholders and investors. Just like in the case of Olympus, the scandals have battered their corporate reputations and share prices. This is not unexpected given the lofty expectations of stakeholders and investors, as well as increasingly stringent scrutiny by regulators. As a consequence, boards of directors are increasingly feeling the heat.

The heightened focus on corporate governance, arising from poor conduct, financial irregularities and rising shareholder activism, demands that boards be extra vigilant. To help optimise performance, the Audit Committee Institute Malaysia recently developed The Directors’ Prism: Building Better Boards, a guide that advises organisations to ask seven key questions to elevate board oversight and corporate governance (see page 36). The Directors’ Prism is a diagrammatic expression of the board and how it relates to other players in the corporate ecosystem. Effective boards are supported by fundamental building blocks; an appropriate structure and foundation; reasonable and well-defined responsibilities; and an understanding of current and emerging issues.

The report describes the board as the pinnacle of the prism. Indeed it is. Apart from a commitment to upholding good corporate governance, companies must ensure that only individuals possessing a wide range of knowledge, skills and personal attributes – sound judgment, integrity and high ethical standards – and the ability and willingness to challenge and probe, be appointed as board members. This may just help reduce the incidence of corporate financial scandals.

Lee Min Keong, [email protected]

3Editor’s choice

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Audit period July 2009 to June 2010138,255

Features12 A different callingWong Koei Onn FCCA has combined his accountancy skills with his Buddhist beliefs

16 Key to changeWill the SME Masterplan be enough to support businesses?

19 At the coalfaceHow energy company China Shenhua has been transformed

24 Olympic winner As offi cial professional services provider for London 2012, Deloitte is already ahead of the Games

28 Smashing the glass ceiling Gender stereotypying remains a problem for the accountancy profession

30 Vietnamese visionIn an exclusive interview we talk to Vietnam’s minister of fi nance, Professor Dr Vuongh Dinh Hue

VOLUME 15 ISSUE 5

Asia editor Colette [email protected] +44 (0)20 7059 5896

Editor-in-chief Chris [email protected] +44 (0)20 7059 5966

International editor Lesley [email protected] +44 (0)20 7059 5965

Malaysia editor Lee Min Keong [email protected]

Chief sub-editor Eva Peaty

Sub-editors Dean Gurden, Vivienne Riddoch

Design manager Jackie Dollar

Designers Robert Mills, Jane C Reid

Production manager Anthony Kay

Advertising James [email protected] +44 (0)20 7902 1210

Head of publishing Adam Williams

Printing Times Printers

Pictures Corbis

ACCAPresident Dean Westcott FCCADeputy president Barry Cooper FCCAVice president Martin Turner FCCAChief executive Helen Brand OBE

ACCA [email protected] +44 (0)141 582 2000

Accounting and Business is published 10 times per year. All views expressed within the title are those of the contributors.

The Council of ACCA and the publishers do not guarantee the accuracy of statements by contributors or advertisers, or accept responsibility for any statement that they may express in this publication.

Copyright ACCA 2012 Accounting and Business. No part of this publication may be reproduced, stored or distributed without the express written permission of ACCA.

Accounting and Business is published by Certifi ed Accountant (Publications) Ltd, a subsidiary of the Association of Chartered Certifi ed Accountants.

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AB MALAYSIA EDITIONCONTENTSMAY 2012

MY_Contents.indd 4 16/04/2012 18:13

ACCA NEWS54 OutsourcingPenang forum looks to the future

56 Global forumsACCA’s Accountancy Futures Academy

60 CPDThe ACCA website now has a new, improved, CPD section

61 Dean WestcottGlobal forums have a vital role to play, says the ACCA president

62 NewsFirst appreciation nights of year a hit; ACCA and Grant Thornton launch report

64 Devanesan EvansonThe ACCA Malaysia Advisory Committee president on shared services and outsourcing

65 CouncilElection time is coming; highlights from the fi rst meeting of 2012

TECHNICAL46 Update The latest from the standard-setters

48 CPD: Uncluttering annual reports Busy annual reports may obscure vital information

51 Convergence clarityDemystifying the new Malaysian Financial Reporting Standards

BRIEFING06 News in pictures A different view of recent headlines

08 News in graphicsWe show a story as well as tell it using innovative graphs

10 News round-upA digest of all the latest news and developments

VIEWPOINT33 Errol Oh Don’t resist the arrival of integrated reporting

34 Cesar Bacani Purchasing power parity tells us much about salaries

35 CORPORATE35 The view from M Nazri of Vector Scorecard Asia-Pacifi c Group, plus news in brief

36 Making boards better Directors must perform more effectively than ever

39 PRACTICE39 The view from Paul Lee of RSM Chio Lim, plus news in brief

40 A rotating debate Auditor rotation is causing a stir in the US...

43 Chilly reception ...and the proposals have met with scepticism in Asia

Regulars

CPDAccounting and Business is a rich source of CPD. If you read it to keep yourself up to date, it will contribute to your non-verifi able CPD. If you read an article, learn something new and apply that learning in some way, it will contribute to your verifi able CPD. Each month, we also publish an article or two with related questions to answer. If they are relevant to your development needs, they can also contribute to your verifi able CPD. One hour of learning equates to one unit of CPD. For more, go to www.accaglobal.com/members/cpd

Your sector

WorldwideThere are six different versions of Accounting and Business: China, Ireland, International, Malaysia, Singapore and UK. See them all at www.accaglobal.com/ab

MY_Contents.indd 5 17/04/2012 15:40

01Flower fans flock to see cherry

blossoms in a Tokyo park. The annual spring trek to parks around Japan to take in the ‘sakura’ attracts millions

02 Tokyo Stock Exchange

and Daiwa Securities received the go ahead to help set up a new stock exchange in Myanmar

03The Communist Party in China

suspended former high-flying politician Bo Xilai from its top ranks and named his wife as a suspect in the murder of British businessman Neil Heywood

News in pictures6

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04 Former convenor of the Non-

Official Members of the Executive Council of Hong Kong, Leung Chun-ying, thanked his supporters and called for unity and inclusion after being elected as Hong Kong’s next chief executive on 25 March

05 Myanmar opposition

leader Aung San Suu Kyi will take her seat in parliament for the first time on 23 April, following her milestone election to political office

06 Coca-Cola’s plans to invest US$4bn

in China will come into effect this year. The soft drinks giant wants to take advantage of the country’s increasing middle-class population and urbanisation

07 German luxury carmaker BMW

sold more cars in China than in the US in the first quarter of 2012. The company sold 80,014 cars in China, 37% more than a year ago. It also posted record quarterly sales overall

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THE RACE IS ONAccording to a report by HSBC, the emerging economies led by China and India will power global growth over the next four decades. By 2050 China will overtake the US for top position, with Japan pushed back into fourth place. The World in 2050 update also predicts that the Philippines will surge to 16th place.

Economic league table dominated by the US, Japan and some European countries

West’s growth limited by high levels of income per head and weak demographics

US$210BNLosses due to Japan’s earthquake and tsunami in March 2011, according to Swiss Re.

$607BNValue of Chinese grocery sector at the end of 2011, beating the US.

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COUNTRIES STILL SLOW TO BRING WOMEN ON BOARDDespite the positive influence of mixed-gender boards, the latest Grant Thornton International Business Report shows that just 21% of senior management roles globally are held by women – little changed from the 2004 figure of 19%. Russia’s exemplary 46% may in part be a legacy of the Soviet Union’s equality ideology.

39%PHILIPPINES

39%THAILAND

27%VIETNAM

15%UAE

33%HONG KONG

25%CHINA

14%INDIA

28%MALAYSIA

2010ECONOMY

2050ECONOMY

2050

2010

24%AUSTRALIA

5%JAPAN

27%TAIWAN

23%SINGAPORE

INDIA: $8.2TR

CHINA: $25.3TR

USA: $22.3TR

JAPAN: $6.4TR

SOUTH KOREA: $2.1TR

SOUTH KOREA: $0.8TR

GERMANY: $3.7TR

INDONESIA: $1.5TR

INDONESIA: $0.3TR

MALAYSIA: $1.2TR

MALAYSIA: $0.1TR

USA: $11.5TR

JAPAN: $5.0TR

CHINA: $3.5TR

GERMANY: $2.1TR

INDIA: $1.0TR

News in graphics8

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KEY: High risk Moderate risk Little or no risk Don’t know

MIND YOUR STEPThe banana skins index, a measure of anxiety levels in the financial sector, is at its highest since it began 13 years ago. Survey respondents say that the greatest threat facing the sector is the fragility of the world economy. The Banking Banana Skins 2012 survey is produced by the Centre for the Study of Financial Innovation and PwC. Figures for 2010 are in brackets.

MOVING ON UP The role of in-house finance teams is under the microscope again as CFOs look to expand their level of influence and encourage innovation and growth. Although the CFO’s role has developed in recent years, most believe that their focus over the next two years must revolve around day-to-day operations and greater engagement with external stakeholders. Respondents to KPMG’s survey From Keeping Score to Adding Value indicate that a number of challenges stand in the way of creating a more forward-looking and integrated finance department.

Organisational complexity

Professional staffing

Finance IT

Ability to respond to change from within

Ability to respond to change from outside

Relationship with other company groups

FEEL THE HEATAsian cities are challenging the top spots in the rankings for most competitive global city, in a survey by the Economist Intelligence Unit for Citigroup, Hot Spots: Benchmarking Global City Competitiveness. Singapore was the highest ranked Asian city out of a field of 120 global markets. US and European cities however remain the world’s most competitive, despite concerns over ageing, infrastructure and large budget deficits.

RANK 1 (4)MACRO

ECONOMIC RISK

1: NEW YORK 2: LONDON 3: SINGAPORE =4: PARIS =4: HONG KONG6: TOKYO 7: ZURICH 8: WASHINGTON 9: CHICAGO 10: BOSTON

RANK 2 (2)CREDITRISK

RANK 3 (5)LIQUIDITY

RANK 7 (–)PROFITABILITY

RANK 8 (7)DERIVATIVES

RANK 9 (12)CORPORATE

GOVERNANCE

RANK 10 (8)QUALITY OF RISK MANAGEMENT

RANK 4 (6)CAPITAL

AVAILABILITY

RANK 5 (1)POLITICAL

INTERFERENCE

RANK 6 (3)REGULATION

18

102

27% 50% 23% 1%

22% 56% 22% 1%

22% 53% 25% 1%

19% 54% 26% 1%

10% 41% 48% 1%

21% 53% 26% 0%

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69

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IMF BORROWING DENIEDThe Malaysian government has denied ever borrowing from the International Monetary Fund (IMF). However, second finance minister Datuk Seri Ahmad Husni Hanadzlah said that the government had fully repaid the loans taken from the World Bank, while a major portion of loans from the Asian Development Bank (ADB) have also been settled. He added that a RM7.93bn (US$2.59bn) loan provided by the World Bank between 1965 and 1999 was fully repaid last year. Another RM3.86bn was borrowed from the ADB between 1968 and 2002, of which only RM372m had not been settled. Ahmad Husni said that the loans were obtained for financing various projects to eradicate poverty and to raise the standard of living.

IFRS PANEL GETS WIDER BRIEF The International Accounting Standards Board (IASB) is to extend the activities of the International Financial Reporting Standards (IFRS) interpretations committee and issue fewer rejection notices, following its most recent meeting. Michael Stewart, director of implementation activities, outlined new proposals agreed by the committee, in response to the trustees’ call for a

more active role in helping implement IFRS. The proposed new tools, agreed by the IASB, include allowing it to propose that application guidance (which has mandatory effect) be added as standard and that it can provide non-mandatory illustrative examples. The IASB stressed that it now expects the interpretations committee to take on more agenda items and, as a result, issue fewer rejection notices.

TAX FILING SIMPLIFIED The Inland Revenue Authority of Singapore (IRAS) is simplifying tax filing for small companies to help them reduce compliance costs and increase overall productivity. Currently, all companies have to report their estimated chargeable income (ECI) within three months of their financial year end. In future, the IRAS says that small companies with turnover not exceeding S$1m (RM2.43m) and with no ECI will no longer need to file the ECI. It added that this waiver will benefit 67,000 companies, or about 42% of all companies with an annual turnover of under S$1m.

AUDIT RULE DEBATE DRAGS ONThe US watchdog for the auditing industry said a debate over possibly

forcing corporations to change auditors every few years would stretch at least into 2013. No potential rule proposal on term limits would be ready this year, the Public Company Accounting Oversight Board (PCAOB) said, as critics and supporters recently descended on Washington to weigh in on the issue. ‘We will be in 2013 before we can reasonably expect to get to any kind of a rule proposal,’ PCAOB chairman James Doty said. The PCAOB first floated the idea last August after uncovering numerous audit deficiencies.

SONY TO AXE 10,000 JOBS Sony Corp is cutting 10,000 jobs, about 6% of its global workforce, the Nikkei newspaper reported, as new CEO Kazuo Hirai comes under pressure to return the Japanese consumer electronics and entertainment company to profit after four years in the red. In 2008 Sony announced cuts of 16,000 workers after the global financial crisis hit demand for its products. As of March 2011, Sony had 168,200 employees on a consolidated basis, according to its website.

SANCTIONS COULD EASEThe US is ready to relax some sanctions on Myanmar, and France will urge the European Union (EU) to ease bans, opening the door for foreign investment after Nobel Peace Prize laureate Aung San Suu Kyi’s recent election victory. Her National League for Democracy won 43 out of 45 seats contested in the by-elections, dealing a blow to the ruling military-backed party which won a 2010 election. The US and EU had hinted that they might lift some sanctions – imposed over the past two decades in response to human rights abuses – if elections were free and fair.

TRANSPARENCY PROMISEDChina premier Wen Jiabao pledged to improve the transparency of the government’s operations and create more conditions for the public to supervise the government, at the State Council’s annual conference on anti-corruption work. The reform

MALAYSIA LEADS ASIAN SUKUKThe total global sukuk issuance for both government and corporate is estimated at US$44bn (RM134.9bn) this year, with Malaysia accounting for 60% or close to US$26bn. Last year, the global sukuk issuance totalled US$26.5bn. HSBC Amanah Malaysia CEO Rafe Haneef said that sukuk issuance in Asia is expected to be the highest this year, led by Malaysia. Infrastructure projects in Asia are likely to be a significant driver of sukuk issuances. Haneef added that, while Hong Kong and Singapore’s sukuk market catered for investors looking for alternative sources of financing, Malaysia’s was aimed at investors who demand Islamic solutions.

Infrastructure projects are likely to drive sukuk issuances in Asia

10 News round-up

MY_B_newsroundup.indd 10 16/04/2012 11:32

P24

plans include various institutional arrangements concerning intensified supervision of powers and enhanced transparency. He urged the country to speed up the establishment of a unified electronic platform for government procurement and a national market for project bidding and transactions of public resources.

NON-PROFIT SECTOR WOOEDSingapore has long courted international banks and companies in its drive to become a financial hub but it is also wooing a very different sector – non-profit groups including campaign charities. Singapore has attracted more than 130 ‘international non-profit organisations’ such as the Mercy Relief and World Vision International charities, and aviation lobby group the International Air Transport Association. This is triple the number of regional or global non-profit organisations based in Singapore when a drive to lure them with tax breaks and other incentives started in 2007.

FISCAL DEFICIT TO FALL TO 4.7% The federal government’s fiscal deficit is expected to dwindle to 4.7% of gross domestic product (GDP) this year, according to deputy finance minister Donald Lim Siang Chai. He said that 4.7% is a ‘reasonable target’ given the government’s prudent spending and increasing revenue. ‘Fiscal consolidation efforts will be continued to bring down the fiscal deficit to less than 3% in 2015 as pronounced in the 10th Malaysia Plan,’ he told parliament. In tandem with fiscal consolidation efforts and prudent spending, Lim said that the fiscal deficit has been reduced from 7% in 2009 to 5.6% in 2010 and 5% last year.

HOPES FOR HIGHER COLLECTIONMalaysia’s Inland Revenue Board (IRB) aims to collect RM110bn in taxes this year, higher than the RM109.67bn last year. CEO Datuk Dr Mohd Shukor Mahfar said that every year about 50% of tax receipts come from companies, 25% from petroleum, 17% from individuals and the rest from other

forms of taxes. He said that Petroliam Nasional’s plan to lower its annual dividend to the government is not a concern as revenue will come from new oil exploration areas.

SC GETS TOUGH The Securities Commission (SC) enforcement efforts saw 13 individuals jailed and fines totalling over RM13.7m million imposed – the highest in its

history, according to the regulator in its 2011 Annual Report. It added that significant outcomes have been achieved in terms of deterrent jail sentences for securities offences, including those concerning disclosure of misleading information to the market, fraud involving public-listed companies and market abuses such as short selling.

BOND MARKET APPEALSA shortage of US dollars, new banking regulations and strong investor demand mean that Asian banks are set to help spur long-awaited innovation in the region’s debt capital

markets. Singapore is consulting on new guidelines to help its banks issue covered bonds and Hong Kong plans to study investor appetite for similar products, while banks across Asia are looking at forms of debt previously unseen in the region, such as hybrid or perpetual bonds. Although most Asian banks are flush with local currency retail deposits, many have been struggling to get access to enough US

dollars, so they are looking at new ways of issuing bonds to raise these funds.

SHARE-SWAP PROBE ONGOINGThe investigation into the share-swap agreement between Malaysian Airline System (MAS) and AirAsia is continuing, said Malaysia Competition Commission (MyCC) chairman Tan Sri Siti Norma Yaakob. Previously, Datuk Seri Ismail Sabri Yaakob, minister of domestic trade, cooperatives and consumerism, had said that the MyCC’s probe into the much-criticised share-swap deal would focus on whether it involved an abuse of monopoly or the formation of a cartel.

ECONOMIC GROWTH LIKELYThe Malaysian economy is expected to grow between 4% and 5% in 2012, slower than last year’s 5.1% and behind the government’s projection of 5% to 6% growth in the Budget 2012. In its 2011 annual report, Bank Negara Malaysia (BNM) said that this was ‘premised upon the expectation of a moderation in global growth and the timely and full implementation of measures announced in the 2012 Budget’. The central bank added that the authorities have sufficient flexibility to support the domestic economy and manage international challenges, should conditions warrant it. Domestic demand will continue to be the main driver of growth in 2012, with the rate of expansion remaining resilient at 6.6%, against 2011’s 8.2%. Private sector expenditure is expected to grow at a slower pace of 8.2% against 6.6% in 2011.

11AnalysisTORCH BEARERAs official professional services adviser to the London 2012 Olympic and Paralympic Games, Deloitte has been competing in its own marathon, keeping tabs on 65 projects involving over 550,000 hours of work so far.

MY_B_newsroundup.indd 11 16/04/2012 11:32

12 Interview

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Wong Koei Onn FCCA doesn’t believe in regrets. Perhaps this stems from his Buddhist faith, or his

experience over the last 15 years as a hospice volunteer, that has taught him that life’s too short. This is just as well, as for many years, Wong struggled to balance his personal philosophies with the demands of accountancy – a profession he entered for the wrong reasons.

‘It was after sixth form and I attended a party of a former teacher. He was telling us about a guy who did accounting and was successful at it. After hearing that story, I didn’t know whether I should go to university or not,’ he says, adding that the indecision was exacerbated by the potential strain on the family’s finances had he opted for university. ‘My brother was already studying at a university in Singapore and I didn’t want to burden my father further.’

So without knowing anything about the profession, he applied to an accountancy firm, joining Kassim Chan & Co in 1972 as an audit junior. Wong studied on his own for the ACCA exams and qualified as a fellow member in 1978. In the same year he joined a property development company as its accountant. By the time he left in 2001

for health reasons, he was both group accountant and secretary. During his time there, Wong facilitated the company’s listing on the Main Board of Bursa Malaysia and helped steer it through the Asian financial crisis.

A few months after his departure, he was coaxed out of retirement to help a friend’s son with his new business – serving as the business director before opting to retire for good from corporate life in 2004.

While Wong acknowledges he’s had a successful career, he has never been defined by his job. In fact, he describes himself as being ‘the most “unaccountant” of accountants’. Strangers or new friends, he says, would always be surprised to learn that he was an accountant.

‘Accountants are generally known for being more money-minded or money-conscious, but this was something that I always struggled with. While I would be careful with every sen of the employer’s money, my flaw is that I can be too trusting of others. I was even ripped off by the contractor who built my house,’ he says, matter of factly. While the episode pained him, he was able to put it aside. ‘As a Buddhist I believe in karma, and that to me rationalised the situation and made me feel better,’ he adds.

The Asian financial crisis put further strain on Wong. ‘Things were not looking good at the time, and by the end of the 1990s debts were mounting and I had to deal with the company’s creditors and banks… this was contrary to my own personal philosophy of not owing people money,’ he adds.

Despite the personal struggle, Wong strived to give and produce his best, and he credits his upbringing for this ethic. ‘We were taught that when you do something you have to respect it and make something out of it. And it was this philosophy that saw me through my career, because I felt that otherwise I would be doing a grave injustice to my employers,’ he adds.

In hindsight, Wong concedes that he might have been better suited to a career in the arts. ‘But I was naïve when I joined the profession and I didn’t receive any career guidance,’ he says, stressing the importance of understanding one’s choice of career. ‘Don’t decide on the profession just for the money, decide after getting a better understanding of what the job entails.’

New callingWong’s involvement in charitable organisations – his second career of sorts – began in 1995 when his parents passed away within three months of

A SEARCH FOR MEANINGWong Koei Onn FCCA wasn’t entirely cut out for accountancy. But, as a hospice volunteer and honorary treasurer, his fi nancial experience and spiritual outlook come together

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The CVWong Koei Onn FCCA started his career with Kassim Chan & Co (today Deloitte Malaysia) in Kuala Lumpur, as an auditor.

He was a group accountant and secretary of a public company listed on Bursa Malaysia for more than two decades, and was later the business director of a private company before his retirement in 2004.

Wong was a pioneer volunteer with the hospice services division set up by Losang Dragpa Buddhist Society in 1997.

He became its honorary treasurer when the division was registered as the Kasih Hospice Care Society, Kuala Lumpur and Selangor, in 2005 – a post he continues to hold to this day.

each other. ‘It was a terrible experience because the grieving period was long. I was very attached to my parents especially my mother, and I felt a void in my life after their deaths.

‘I began to think of the meaning of life… we go to work, come home, have our meals, watch television and go to bed, and do the same thing again the next day and the day after. For many people this is life but I felt that there had to be more to it than that.’

A couple of years later, a friend told him about the Losang Dragpa Buddhist Society’s plan to start a community service arm specialising in hospice care. ‘This answered my wish to do something meaningful, so my wife and I registered for the volunteer training course,’ says Wong.

The training sessions were held on weekends and were conducted by a Buddhist monk from Australia, Venerable Pende Hawter, and a

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The tips‘If you fear death and are interested in overcoming this fear, and are able to put your mind to the task, then you can consider being a hospice volunteer,’ says Wong Koei Onn.

If you’re someone who is results-oriented, then volunteering is not for you. You won’t get a pat on the back. To succeed as a volunteer you need passion and compassion, a willingness to listen and most important of all, a lot of empathy.’

The basics THE SOCIETYKasih Hospice Care Society is a not-for-profit organisation that provides medical, psychosocial, emotional and spiritual support to people with life-threatening diseases.

In 2011, its medical team served 338 end-of-life home patients, while its non-medical volunteers served a total of 1,650 hours and made 2,420 visits to cancer and AIDS patients in hospitals.

renowned palliative care doctor based in Singapore, Dr Rosalie Shaw.

The pioneer group of volunteers then began their visits to hospitals, starting with the AIDS ward at a hospital in the Klang Valley and later the cancer ward at Kuala Lumpur Hospital. At the time, due to a lack of resources, the volunteers focused on providing moral support. ‘We talked to the patients and kept them company… in this job empathy is important, the fact that you’ve listened and empathise with them is good enough,’ says Wong.

It was after the community service arm was registered as Kasih Hospice Care Society in 2005 that Wong’s accounting experience – as well as his people skills – proved invaluable. As its honorary treasurer, Wong insisted that the organisation’s accounts be professionally audited even though this was not a requirement.

‘In the beginning I had an accountant friend undertake the audit and he did it for free, but later I felt that this was not too independent, so we switched to another firm and insisted on paying [the audit fees].

‘Because we are entrusted with public funds we have to be clean and seen to be clean,’ he adds.

In 2007, he helped establish the Kasih Foundation, a limited company

‘ACCOUNTANTS AREGENERALLY KNOWNFOR BEING MOREMONEY-MINDED ORMONEY-CONSCIOUS,BUT THIS WASSOMETHING I ALWAYSSTRUGGLED WITH’

responsible for the hospice’s fundraising activities, and became a director. In addition, he also conducts training sessions for new hospice volunteers.

Growing supportFollowing registration, the society employed two full-time nurses and secured the services of a volunteer doctor. Today it has one full-time doctor and three nurses, all salaried. ‘With that we were able to offer a more complete hospice care,’ adds Wong. While it does not offer in-patient services – due to a lack of finances and manpower – the medical team provides free palliative care to patients suffering from life-threatening diseases at hospitals and at patients’ homes.

Wong hopes that the society will be able to offer in-patient services in the future. His main concern for the growth of the society is the lack of manpower. ‘Under our current healthcare system, palliative care is still at its infancy. And because it’s not in the mainstream few doctors and nurses specialise in this field,’ he adds. He laments that government support is also ‘not fantastic’, leaving the society reliant on donations from the public.

So has he found meaning in life? Wong ponders before responding candidly. ‘I’m not too sure if I’ve found more meaning in life and I do wonder if the experience will prepare me to face a life-threatening disease. I think this service has helped me more than I help the patients.

‘I see so many patients who are so brave and many tell me that they are not afraid [of dying]. I ask myself if I can be as brave. I hope that I will be able to draw inspiration from these patients.’

Sreerema Banoo, journalist

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The SME Masterplan, launched last year, is a reflection of the government’s seriousness in propelling the country’s small

and medium-sized enterprise (SME) sector towards greater heights, and an acknowledgement of its importance to the nation’s economic wellbeing.

Last November, the National SME Development Council (NSDC) endorsed the second phase of the SME Masterplan for the period 2012–20. It included macro targets such as increasing the contribution of SMEs to gross domestic product (GDP) from 32% in 2010 to 41% in 2020, employment share from 59% to 62% and export share from 19% to 25%.

While the masterplan itself is a step in the right direction, commentators say that a plethora of challenges – spanning human capital issues, access to financing and enhanced competitiveness and innovation –remain a thorn in most SMEs’ side.

They agree that the ability to achieve the masterplan’s broad targets is dependent on the proper execution of its initiatives to prime the sector to achieve its full potential and consolidate its role as a major pillar of the economy.

Based on SME Corp’s bi-annual survey, CEO Datuk Hafsah Hashim says that in 2010 and 2011 the three key challenges affecting the SME sector were rising raw materials and input costs, rising overhead costs and cashflow constraints.

PwC Malaysia executive director Farah Rosley notes that SMEs often face difficulties in obtaining loans from financial institutions and

the government due to the lack of knowledge on the channels available, or delays due to the application process. In addition, financial institutions’ interest charges are high, she says: ‘This poses a problem for SMEs both during the startup process and in their efforts to expand further as they may not be able to survive the critical period in the initial years.’

Likewise, Chen Voon Hann, managing partner of accountancy firm CAS & Associates, notes that fast-rising operational costs certainly affect competitiveness of SMEs as not all costs can be passed on to customers immediately.

In addition, Rosley observes that SMEs, due to their smaller size, limited training facilities, resources and managerial skills, face challenges in innovating and continuous improvement. She adds that SMEs may have problems employing professionals or a competent workforce due to cost.

On top of all these challenges, SMEs also need to commit towards enhanced communication with the market, product innovation and quality – elements that really deliver competitive advantage. However, this is easier said than done. ‘Entrepreneurs do not place much importance on research and development (R&D) as it requires a huge investment,’ Hafsah concedes. ‘The utilisation of technology, which

is still relatively low [among SMEs], poses another problem in addition to constraints faced by the entrepreneurs to move forward.’

Innovate to survive A lack of understanding on how to market products also results in SMEs losing out on business opportunities. In terms of being more innovative, Rosley believes that SMEs cannot slack in being relevant to the market or they will be defeated by bigger organisations which have the strength and financial muscle.

‘In a recent global survey conducted by PwC – the 15th Annual Global CEO

Survey – many of the 1,258 CEOs from across the globe indicated that improving the effectiveness of innovation continues to be a major strategic priority,’ she says.

In this case, innovation does not just mean from the end product or services customers will buy. It can also mean taking costs out of processes or forming strategic alliances to collaborate, enhancing SME competitiveness, says Rosley.

While the SME Masterplan maps out the strategic direction for the development of the sector, the government has sought to give it a boost through various initiatives covering microenterprises, rural SMEs and women entrepreneurs,

KEY TO PROSPERITYThe Malaysian government’s SME Masterplan has acknowledged the importance of the sector to the economy. But can it open the door to better times for smaller businesses?

*SME MASTERPLAN – HIGH-IMPACT PROGRAMMES

WHILE THE MASTERPLAN ITSELF IS A STEP IN THE RIGHT DIRECTION, A PLETHORA OF CHALLENGESREMAIN A THORN IN MOST SMES’ SIDE

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SME Corp’s Hafsah says. These include new financing schemes such as the RM2bn sharia-compliant SME Financing Fund; a RM100m SME revitalisation fund offering a second chance to genuine entrepreneurs to revive their businesses; and a RM10m emergency fund to help SMEs face natural disasters.

As an implementation agency, SME Corp has developed and implemented programmes aimed at assisting SMEs in gaining greater market access, improving their capacity and capability, encouraging better adoption and utilisation of technology, and enhancing their overall competitiveness, Hafsah adds.

Some of these include the Business Accelerator Programme (BAP) and

1 Integration of registration and licensing of business establishments to create a single registration point through interfacing of the current National Business Registration System (MyCOID) and the National Business Licensing System (BLESS).

2 Introduction of a technology commercialisation platform to promote innovative ideas right through from proof of concept to the commercialisation stage.

3 The SME Investment Programme will provide early-stage financing through the development of investment companies which would invest in potential SMEs in the form of debt, equity or a hybrid of both.

4 The Going Export (GoEx) Programme offers customised assistance to new exporters and SMEs venturing into new markets.

5 The Catalyst Programme will create homegrown champions through a targeted approach with financing, market access and human capital development support.

6 Inclusive Innovation is specifically designed to empower the bottom 40% of the income group to leverage on innovation to promote transformation of communities, including microenterprises in rural areas through handholding and technical and management support.

For more information, visit www.smeinfo.com.my

*SME MASTERPLAN – HIGH-IMPACT PROGRAMMES

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Enhancement and Enrichment Programme (E2) which enable SMEs to be assisted through an integrated approach with guidance, including strengthening their core business, building capacity and capability, and facilitating access to financing.

All in the executionBoth Rosley and Chen agree that effective execution of the initiatives contained in the masterplan are what will determine whether the country achieves its SME sector goals by 2020.

‘With clear and proper implementation, the aspirations of the masterplan are achievable as it covers all the critical issues facing SMEs,’ Rosley says. ‘These critical issues – the need for funding, resources, market opportunities, capacity building, innovation and logistics support – are included in the masterplan and the implementation of the plan, in two phases, has been properly drawn out.’

While there are many incentives and measures outlined by the government from time to time, the main challenge is about the effective implementation of those policies and incentives, Chen says. Although the public sector plays a supporting role to assist SMEs reap the benefits from the measures, joint efforts from both the public and private sectors are needed to make the masterplan a success, he adds.

To ensure the goals are met, Rosley says, all parties involved – including SMEs, government authorities, relevant agencies, financial institutions and other stakeholders – should play an active role and create a value chain.In addition to the initiatives, she also suggests the establishment of better cooperation between SMEs and government-linked companies.

There is also a need to simplify processes and enhance transparency and equality in the distribution of resources such as funding, loans and grants, as well as government procurement process.

In July 2009, the International Accounting Standards Board (IASB) published the IFRS for SMEs, designed for the financial reporting needs of entities that do not have public accountability and publish general purpose financial statements for external users including existing and potential creditors, and credit rating agencies. The standard is available for any jurisdiction to adopt, whether or not it has adopted full IFRS.

In ensuring the standard’s relevance, the IASB plans to initiate a review in the second half of 2012, expected to include a request for public comments on possible amendments. More information is available at the IFRS for SMEs segment at www.ifac.org

Currently in Malaysia, SMEs adhere to the Private Entity Reporting Standards (PERS), a set of standards issued by the Malaysian Accounting Standards Board (MASB) for application by all private entities.

PERS are an alternative mechanism for private entities to present their annual financial statements without compliance with international accounting standards. They remove certain disclosure requirements in accordance with the information required for decision-making at a non-public interest entity. The regulators have yet to announce any tentative date for the adoption of the IFRS for SMEs.

*FINANCIAL REPORTING FOR SMES

Syed Zed al-Qudsy, CEO of financing firm SME Factors, says that the government could look into promoting the private financing sector for SMEs. ‘With greater participation, we believe that accessibility to financing [for SMEs] will be enhanced,’ he says. ‘One possible option that the government may implement to promote this is to provide tax incentives to these private financing companies.’

Although the masterplan has been announced, nothing is carved in stone and there will be a need to constantly review the policies to ensure relevance. ‘The masterplan is aligned to the overall national policy and will be fine-tuned in line with the changes in the environment. It is running

until 2020, so it has to be flexible,’ says Hafsah.

She adds that the targets set are based on typical characteristics of a developed economy and ‘we hope to be able to meet them by 2020, which is when Malaysia is set to achieve developed nation status’.

It is clear that the path ahead for SME sector development lies in collective effort from different stakeholders through innovative approaches. This is not something to be achieved by SMEs alone; the entire ecosystem has to form a chain to support the growth of the industry.

Asha Gopalan, journalist

Something’s cooking: Kuala Lumpur’s street vendors are among the SMEs that could benefit from government support

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The global economic environment has changed significantly since the global financial crisis. Comprehensive

risk management has become an imperative and is a pressing issue faced by all executives and scholars. Under this environment, an internal control system based on comprehensive risk management has been pioneered by the world’s largest coal producer, China Shenhua.

The company, which has operations across a complete coal sector value chain, is representative of large state-owned enterprises (SOEs) that are of significant importance to the Chinese economy. Sales revenue and total profit stood at 208.197 billion yuan and 65.093 billion yuan in 2011 respectively, more than five times of that in 2004 (39.2 billion yuan and

11.8 billion yuan respectively). Shenhua has 56 subsidiaries

operating worldwide. Amid rapid economic growth and swift corporate expansion, our team confronted an unprecedented risk management challenge: how to strike a balance between rapid economic growth and risk control. I believe a study of Shenhua’s risk management and internal control system will provide useful insights for other large enterprises both in China and abroad.

Comprehensive systemSince its initial public offering on the Hong Kong Stock Exchange in 2004, Shenhua has been progressively

developing a tailored, comprehensive risk-oriented internal control system. This push comes as a response to external regulation and also specific internal control challenges that Chinese firms generally face. The system was literally built from scratch and was an organisation-wide effort that drew valuable lessons from international experience.

Shenhua’s internal controls and risk management are not affiliated with any single department or subsidiary, but

are essential to the company’s overall operations. Senior management has spared no effort in integrating internal control and risk management into the corporate culture and operations with the aim of achieving a self-learning, self-organised, self-adaptable, and self-optimising system in which risk awareness is embedded in daily operations and management.

As a result, Shenhua is enjoying healthy growth.

In order to implement internal controls, Shenhua evaluates each of the major risks each year, sets in process the risk control points, and defines the corresponding control measures and standards to ensure that control activities are arranged to each risk point. Key risk indicators were designed for monitoring the status of risks simultaneously, thereby accomplished effective risk management. In the following sections, Shenhua’s four major risk management experiences in 2010 are highlighted and discussed.

Branch management risksThe number of Shenhua’s subsidiaries (and branches) continues to rise through asset growth, mergers and acquisitions and restructuring, creating an increasingly complex organisational structure and management system. Ambiguous management systems and an imbalance of management controls over subsidiaries (and branches) by the head office prevented effective top-down communication. Resource sharing and coordination between departments also proved problematic.

RICHER SEAMSChina Shenhua’s CEO Dr Ling Wen explains how he introduced a comprehensive risk management system that transformed the coal-based energy company

THE SYSTEM WAS BUILT FROM SCRATCH AND WASAN ORGANISATION-WIDE EFFORT THAT DREWLESSONS FROM INTERNATIONAL EXPERIENCE

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Cranes unload imported coal from a ship at Lianyungang Port

Since 2008, Shenhua has been successively integrating its subsidiaries on a business sector basis. Strategically and economically, the integration of Shendong Coal Group was one of the most important milestone events in Shenhua’s history as it involveed four subsidiaries and branches in the Shendong Mining Area, Shenhua’s principal coal production unit. In the initial stage of integration, the management of the four subsidiaries and branches were decentralised. Due to a lack of supporting facilities and specialised management team, the company’s basic coal-related services provided by Shendong could not meet market requirements. To solve this problem, Shenhua enhanced internal and external communication channels, increased sharing of resources among subsidiaries, and strengthened audit/oversight functions.

After the strategic integration and restructuring of Shendong Coal Group, the subsidiary’s 17 underground coal mines and five surface supporting production units were included in the intrinsic safety management

system with uniform supervision and assessment. The head office is able to take tighter control over its subsidiaries and branches, as well as 17 mega mines thanks to the enhanced communication efficiency. The consolidation also significantly reduces cost, achieves economies of scale, improves resource utilisation, and reinforces risk supervision and control.

One year after restructuring, Shendong Coal Group continued to lead the world with the lowest mortality rate, and the unit production cost per tonne was 3.71 yuan lower than planned. Indicators related to security, output, efficiency and cost meet leading international standards and top domestic counterparts. Its output of coal accounts for 6% of China’s total, compared with 4.8% previously.

Coal market risksCoal market risk is an inherent risk for coal companies. On the policy front, the development of high-energy consumption industries is confined amid tighter macroeconomic policy modulation and energy-saving and emission-reduction policies. The

development of renewable energy and clean energy sources may reduce coal consumption. On the supply and demand front, the company is dependent on its key accounts due to a concentration of sales that gives buyers some bargaining power. Meanwhile, many power companies have begun to adopt vertical integration strategies and gradually integrated upstream coal production sectors to minimise costs in external purchase of coal.

Both policy and demand factors contribute to an increased number of coal producers, resulting in fierce competition for market share and quality resources. Combined with fluctuations in market prices, Shenhua’s operation performance has been directly affected.

In response, Shenhua accelerated the transformation of its sales methods by formulating a ‘mega-sales’ strategy and established the Shenhua Coal Trading Group based on the Coal Distribution Center in 2011, to manage coal sales and market risks centrally. Specific initiatives in this area included further consolidation of the multi-sector

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China Shenhua Energy Company was incorporated in Beijing, China on 8 November 2004. H-shares and A-shares were listed on the Hong Kong Stock Exchange and Shanghai Stock Exchange in June 2005 and October 2007 respectively.

China Shenhua is a world-leading coal-based integrated energy company, with principal businesses covering coal production and sales, railway, port and shipping of coal-related materials, as well as power generation and sales. With the largest coal reserves, is the largest coal supplier in China. The company’s large-scale, effective, and safe production mode has become a model in China’s coal industry.

Being both the largest coal producer domestically and internationally, it is very representative of large centrally administrated enterprises in China that are of significant importance in the Chinese national economy. Its market capitalisation stood at US$84bn on 16 March 2012, with 4.52 times more net assets that when the company was established (US$18.58bn). It is the largest among all listed coal companies, or the fourth among all listed integrated mining companies worldwide. China Shenhua has 56 subsidiaries in more than 10 provinces and cities in China, and other countries and regions such as Australia and Indonesia.

In 2011, the company saw another rise in its businesses. The sales volume of commercial coals reached 387.3 million tonnes, representing a year-on-year growth of 23.7%. The total power output dispatch reached 167.61 billion kWh, representing a year-on-year increase of 27.3%. The revenues of 2011 amounted to 208.197 billion yuan and profit attributable to equity shareholders of the company for the year was 45.677 billion yuan. Basic earnings per share were 2.296 yuan.

*CHINA SHENHUA ENERGY COMPANYintegrated business model by securing both domestic and international supply and distribution channels, centralisation of corporate resources and decision-making, and increased attention to the recruitment and retention of highly qualified personnel.

Following integration, Shenhua Coal Trading Group has transitioned from production-based sales to production and operation-based sales. Economic belts of distribution; mining areas, areas along railway networks and coastal regions have gradually formed. Its distribution network has also extended to inland regions along the Yangzi River and thus expanded to the entire country. The creation of a large distribution network gives Shenhua an enormous advantage in gathering market information, allowing the company to seize business opportunities and attract new domestic and foreign customers. It also generates more timely feedback on the latest policies and market information to be transmitted to senior levels. As a result, the head office, more capable in recognising and managing market risks, can make effective and efficient strategic decisions.

For product sales, Shenhua Coal Trading Group focuses on product segments and differentiated operations: low-quality coal is strategically subjected to local consumption while high value-added products are sold using innovative sales such as pricing mechanism reforms, secondary distribution, electronic trading of lump coal and auction sales. After launching the new pricing mechanism, company sales increased year on year by 32.9% in the first half of 2011. Market risk has been successfully eliminated from the top 10 risks in its comprehensive risk management assessment of 2011.

Safety management risksThe coal, railway, port, shipping and coal liquefaction chemical sectors that Shenhua engages in all pose significant safety risks. As a state-owned enterprise

and the largest global coal dealer, Shenhua is entrusted with the crucial role of stabilising the coal market. Major accidents may disrupt Shenhua’s integrated operations, and adversely affect its competitive advantages.

Shenhua strives to ‘put an end to serious accidents, reduce general accidents, eliminate fatal accidents, and target zero mortality per million tons of raw coal production’. A production safety management mechanism has been set up for such a purpose, and it is under continuous refinement and upgrading. The five components of this system are risk management, personnel management, safety management, assessment management and information management.

Through mechanised operations and other technological reforms, Shenhua aims to drive sustainable and healthy development. Shenhua is actively promoting technology as a safeguard for production. It has actively upgraded its mechanised levels in coal mining to

reduce injuries. On 31 December 2009, the world’s first seven-metre long wall work face with high-seam thickness was put into place and Shendong’s Bulianta mine is expected to bring enormous economic and social benefits to the company.

In recent years, Shenhua has maintained a good safety record, and ranked as a leading player in the coal industry in terms of scale, efficiency and production safety. In 2010, its fatality rate per million tonne of raw coal was 0.0123, lower than the industry average in China and a leading level in the world. Fourteen coal mines were accredited as China 2009 Premium Safe and Highly Efficient Mines by the China Coal Industry Association, representing approximately 70% of Shenhua’s coal mines in production.

Overseas investment risksShenhua strives to fully utilise its capital funds through diversified

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A China Shenhua dock at Tianjin Port

investments to spread out risks and to improve its management and consolidate existing markets. I have repeatedly stressed the expansion necessity and acquisition strategy through domestic integration and overseas assets selection.

Given the larger scale and scope of overseas investments, investment risks are increasingly prominent. In order to mitigate these risks, China Shenhua has accelerated training of staff engaged in overseas assignments, strengthened public and government relation channels in foreign countries, and applied analytic frameworks to support overseas investment decisions.

In November 2011, Shenhua established Shenhua Overseas Development & Investment Co, split from Shenhua International, to focus on developing overseas markets and seeking international investment opportunities. As an independent investment company, it can rely on China Shenhua’s mega distribution network, obtain market information

and use the previous investment platform and experience of Shenhua International in expanding overseas businesses. It can also form highly qualified investment teams to gather information, make model-based calculations, formulate strategies and execute projects. Professional investment analysis and risk controls bring higher investment quality and yield, and help China Shenhua to pursue its ‘going-out’ strategy.

Conclusion and outlook Prior to its risk management reforms, Shenhua experienced unbalanced and ineffective management controls over its subsidiaries, inefficient resource sharing and coordination, inflexible pricing mechanisms, dispersed sales function, weak distribution and supply chain networks, and lax overall budget control and supervision on safety of projects. With a comprehensive risk-based internal control system in place, the company greatly enhanced its market risk response capability and facilitated prompt communications,

efficient resource sharing and business process optimisation.

Looking forward, Shenhua will continue to enhance its comprehensive risk management by integrating internal controls and risk management into production and operations.

Globalisation is a path that enterprises must take to become world-class while international competition will inevitably bring globalisation risks as well. As such, effective response to risks alongside globalisation is also one of the company’s major strategic missions. With the objective of developing into ‘the most competitive, dynamic and world-leading integrated energy enterprise’, Shenhua will continue its management innovation for the incorporation of risk management approaches into the company’s globalisation process.

Dr Ling Wen, who holds a PhD in engineering, is director and vice president of Shenhua Group Corporation. Dr Ling is also the executive director, president and CEO of China Shenhua Energy Company, which is listed in Hong Kong and Shanghai. He also serves as the general director of Shenhua Charity Fund.

GLOBALISATION IS A PATH THAT ENTERPRISESMUST TAKE WHILE INTERNATIONAL COMPETITIONWILL BRING GLOBALISATION RISKS AS WELL

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Adverts_May12.indd 2 16/04/2012 12:08

Wheels of fortune: Olympic qualifying event at Stratford Velodrome

Number of tickets to Olympics/Paralympics

Number of Olympic sports taking place

Number of venues for Olympic events

Number of Olympic athletes competing

Number of Paralympic athletes competing

Number of sports kit items sourced by Locog

Area in sq km of Olympic Park

Number of nails needed to construct Velodrome

10.8M

26

34

10,500

4,200

1M

2.5

300,000

*2012 IN FIGURES

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Staging the greatest show on earth is fraught with all kinds of difficulty. There is rich potential for budget overruns,

urban gridlock, athletes turning up at the wrong time in the wrong place and with the wrong equipment, security meltdowns and plenty more. But there is also the opportunity for London, the UK and all involved to shine, and this is very much the hope of Deloitte, in its wide-ranging role as adviser-in-chief to the 2012 Olympic and Paralympic Games.

The London venue became a reality in 2005 when, amid great fanfare, the city beat Paris for the right to host the 2012 Games. Deloitte’s own Olympics journey began in earnest two years later, when it was appointed official professional services provider, giving partners and staff a once-in-a-generation chance to be involved in an event that is both hugely exciting yet daunting in its scale and organisational complexity.

Deloitte provides tax, management consulting and financial support services to the London Organising Committee for the Olympic and Paralympic Games (Locog), and is planning and coordinating no fewer than 65 separate Games projects.

The eight-year secondmentThe Deloitte partner with the biggest Olympics profile is Neil Wood, the man charged with ensuring the Games runs within budget. He became Locog’s CFO in 2005 and by the time the Games end he will have been seconded for a staggering eight years.

Indeed, around 130 of Deloitte’s UK staff have been seconded to work on

Locog. An estimated 550 staff and 45 partners at the firm will be able to put the Games on their CVs in one way or another.

Deloitte’s broader Games delivery work includes keeping the Games and the city moving and building capability right across the major organisations involved with the Games. Efficient organisation is an event that doesn’t feature in any Olympics calendar but shining at it will be the equivalent of gold for Deloitte.

Event organisation skills are in increasing demand globally, and the expertise demonstrated in 2012 can be exported to other organising committees and major event hosts. At the time of writing, Deloitte had put in

a staggering 550,000 hours of work for the 2012 Games across a number of the ‘Olympic Family’ including Locog, the British Olympic Association, Greater London Authority and Olympic Park Legacy Company.

As a ‘tier-two’ sponsor, Deloitte is thought to be paying in the region of between £20m and £30m for the privilege of doing the work for Locog which accounts for the vast majority of the hours delivered. It is, the firm says, an investment which generates a return through the way in which the sponsorship is activated – particularly in building client relationships and by impacting

recruitment and retention of star performers.

Much as athletes put their all into getting to the Olympics, a large number of Deloitte staff have been vying to work on the 2012 project.

Heather Hancock, Deloitte’s global lead partner for London 2012, says: ‘Sport is about commitment, passion and an endless focus on getting the big and the small things right. I am delighted to be working to help ensure this same commitment, passion and detail filters right through the delivery efforts of the British Olympic Association.’ The BOA selects, leads and manages Britain’s athletes for the Games and, along with the sports minister and the mayor of London, is

one of Locog’s three key stakeholders. There are three parts to Hancock’s

remit: service delivery, sponsorship activation, and integration with the firm’s global activities. ‘All the secondments we make to Locog, the advisory work we provide and our wider contributions to the Olympic and Paralympic family come under my oversight,’ she explains. ‘I’m also managing partner for innovation and brand, so I have executive responsibility for our sponsorship of London 2012 and how we activate that across the UK.’

Hancock also coordinates the worldwide Olympic sponsorship

With around 130 of its staff seconded and over 550,000 hours on the clock so far, Deloitte is at the heart of preparations for London 2012. We catch up on the current state of play

‘EVERY BUSINESS IS SEEKING THAT SAME ABILITY TO TACKLE COMPLEX CHALLENGES IN PRESSING TIMESCALES WITH TIGHT BUDGETS’

With around 130 of its staff seconded and over 550,000 hours on the clock so far, Deloitte OLYMPIC DRIVE

25


Field of dreams: the Olympic Stadium *UNDER BUDGET?

relationships that the other Deloitte firms are delivering.

Deloitte’s support for the BOA’s preparations has focused on helping to create the framework for managing the hugely complex task of mobilising and managing hundreds of athletes through preparation, qualification and competition programmes.

One such project is final Team GB camp at Loughborough University. Over a seven-week period across June and July, every single Team GB athlete will pass through Loughborough.

One of the significant milestones of the Loughborough camp will be the allocation of kit to each athlete. This is the moment when competing at London 2012 becomes very real and where athletes connect receiving their kit with the fact that they are one of 550 chosen to represent their country this summer.

The camp requires the coordination of the athletes and thousands of items

UK sports minister Hugh Robertson claims the Olympics is likely to come in under budget after revealing the event will probably not need to tap its entire £9.3bn public funding package.

Latest quarterly accounts show £527m of unspent contingency budget remaining, with the most recent assessment of likely risks showing that more than £100m is likely to remain unspent and will be returned to the Treasury.

This is in contrast to recent revelations claiming the cost of staging the event had spiralled to more than £12bn. The government’s public sector budget for the Games has already risen substantially from the £2.37bn quoted in 2005 when London won the right to stage the 2012 Games.

Sky News had reported that an extra £2.4bn had been added to public sector spending as a consequence of further spending in areas such as additional anti-doping control officers, paying London Underground workers not to strike, governmental operational costs and legal bills over the controversial Olympic Stadium tenancy decision.

Sky said that additional costs would further swell this figure, with the police being allocated £1.1bn in counter-terrorism funding and a £4.4bn budget for the security and intelligence services. The extra cost of 12,000 police officers on duty during the Games and the £6.5bn being spent on transport upgrades could bring the ultimate cost of the 2012 Olympics to more than £24bn.

However, Robertson says he is increasingly confident that the project will come in under budget and that the government would ‘not quite empty the piggy bank’, adding: ‘It is fair to say we are increasingly confident we can land this on time and within budget. It is enormously encouraging that we are 96% complete and still have £500m in the budget.’

26


‘THERE IS SUCH A BUZZ. TO BE PART OF THE HOME TEAM AT THE GREATEST SHOW ON EARTH IS AN AMAZING EXPERIENCE AND OPPORTUNITY’

of equipment tailored for each one. Some athletes will attend as individuals, others as part of a team, some for a few hours, others for days; all will have the opportunity to train at the camp.

Deloitte has helped plan and cost the operation, manage the associated risks and ensure that all parts of the organisation are working together to deliver a memorable experience.

The Olympic experienceFor Deloitte staff, taking part in organising the 2012 event has been an unforgettable experience. Staff on secondment at the BOA will return to the firm after the Games and have opportunities to translate the experience of delivering results in a high-pressure, complex environment to other clients. They will be more experienced consultants, will have worked client-side for a considerable time and developed their skills in delivering highly complex programmes.

One former Deloitte employee who won’t be returning to the firm after the Games is Kate O’Sullivan. She joined the BOA as Olympic programme director permanently in 2011, following

her work on leading programme management for the Vancouver 2010 Winter Olympics. She remained at the BOA to lead programme management for London 2012.

O’Sullivan says: ‘I started at Deloitte through the graduate scheme and working there laid the foundations for everything that has followed and presented me with incredible opportunities. Before I was seconded to the BOA, I experienced a whole host of roles in different clients and in-depth training that has been the bedrock of what I do every day.’

Deloitte’s work has clearly impressed other Olympic organisations, with numerous enquiries received about how Deloitte and the BOA has gone

about the work. While there has been much

consideration of the legacy the Olympics will leave in London, Deloitte’s expertise will have a lasting BOA legacy of its own in the shape of programme controls, greater focus on the value of detailed plans,

budgets and improved communication across the organisation. Hancock says: ‘The BOA has been hungry to learn and tailor techniques for its own requirements. It will be ahead of its rivals in Rio in 2016. Other organisations want to learn from the BOA and observe its work.’

Robust portfolioFrom the firm’s point of view, its work with the BOA and the Games has been fantastic for showcasing its skills to potential clients. After all, whether you’re the CEO or a new recruit, sport is an attention-grabber.

Hancock adds: ‘It’s such an interesting and exciting platform to explain what we can achieve. And every

business is seeking that same ability to tackle complex challenges in pressing timescales with tight budgets.’

With the opening ceremony edging ever closer, the pressure and excitement continues to build.

O’Sullivan says: ‘We’re really into the countdown to London 2012 now and there’s such a buzz of excitement. This is an event that will touch a huge percentage of the British population and resonate around the world. To be part of the home team at the greatest show on earth is an amazing experience and opportunity.

‘A home Games only happens once in a generation, possibly a lifetime, so it’s hard to predict what it will throw up for the host country. There are 26 sports over two weeks – but outside that everything is fluid.

‘The vast range of domestic and international stakeholders makes it even more challenging and complex. That means that our plans need to be agile enough to respond to change on an ongoing basis right up to the end of the closing ceremony.’

It is difficult to imagine a bigger, more challenging or more prestigious stage to be on – and that doesn’t just apply to the athletes.

Alex Miller, journalist

Heather Hancock: passion and detail

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According to the Gender Diversity Survey 2011, the first of its type on the extent of gender inequalities in the

financial sectors of Asia Pacific, four in 10 (39%) financial professionals from Hong Kong and China believe that they have been discriminated in the workplace or are aware of others being discriminated.

Conducted in November 2011 by global online recruitment firm eFinancialCareers in partnership with The Women’s Foundation, the survey polled 374 financial professionals from Hong Kong and China. Fifty-four per cent of the respondents were male and the rest were female.

Over half (53%) of the finance professionals surveyed said that there is a gender income gap in the financial services industry. Male-female income disparity appears more prevalent in higher-powered positions – 51% said there is a significant gap in pay in top managerial positions.

Forty-two per cent believe being a man makes it easier to get promoted. And 34% sensed a gender bias in the recruitment process.

‘Do I think equality in financial services is a problem? Yes, I do,’ says Kay McArdle, board chair of The Women’s Foundation, a charity dedicated to improving the lives of Hong Kong’s females. ‘The results further support that women are not represented, despite being successful from a financial perspective.’

China ranked 61 in the sixth annual World Economic Forum Global Gender Gap Report 2011. Iceland, Norway, Finland and Sweden have maintained their top global rankings in the last five years, she says.

In Hong Kong, the Sex Discrimination Ordinance was introduced in December 1996. But, according to Community Business, a not-for-profit group which champions the role of women in the Asian corporate world, women make up just 2% of the CEOs and 9% of board members of companies listed on the Hang Seng Index.

‘Gender stereotyping which works against women is still prevalent, both in the upper sector of the job market and at home. Such biases, though perhaps more subconscious than explicit, hold back capable women from advancing as far as their abilities allow, says Lam Woon-Kwong, chairperson of the Equal Opportunities Commission (EOC).

The EOC received 24 job-related sex discrimination complaints up to November 2011, up from 16 in 2010. By stereotyping and confining female staff from contributing their best, companies waste talents and missed business opportunities, Lam says.

McArdle agrees, saying that women within financial services have proven themselves to be a ‘real asset’.

‘A firm which has some women in its highest leadership ranks will have higher earnings per share, a higher return on equity, and stock prices than competitors with few or no senior women. And that’s been held up by research,’ McArdle says.

Male bravadoGeorge McFerran, head of Asia Pacific of eFinancialCareers, spearheaded the survey after receiving more enquiries from his clients on how to retain talent. The survey shed light on the root causes of gender bias: 57% of respondents believe that men are more likely to put themselves forward for promotions.

‘They believe that men are more aggressive when it comes to pushing for opportunities and pay rises. That perhaps explained why the gap exists,’ McFerran says.

Without a study, the extent of gender equality in the accountancy sector is unknown and the EOC do not break down complaints by industries.

But according to professor Judy Tsui, chair professor of accounting at the Hong Kong Polytechnic University (PolyU), men still dominate the partnership ranks of accountancy firms.

‘Though there is an increasing trend that more women make it to the partnership ranks, the top ranks are still predominantly male,’ Tsui says. ‘

‘In a Chinese society like Hong Kong, the prescribed gender role for women is still very much for them to take up childcare and domestic responsibilities, making it hard for women to make advances in career as they have to juggle family responsibilities and career aspirations,’ Tsui says.

EOC founding chairperson Fanny Cheung Mui-ching agrees, adding that a lack of work-life balance in the accountancy industry is also a factor.

‘People in accounting work long hours until late evening. It makes it difficult for women because most of them have to care for their family,’ says Cheung, director of the Gender Research Centre of the Chinese University of Hong Kong. ‘If they choose to spend more time to take care of their family, they must give up career advancement as it requires a lot more involvement from them.’

Rosanna Choi, immediate past chairman of ACCA Hong Kong and partner of accountancy firm CWCC, says ‘gender inequality still exists’ in the local accountancy sector. She notes

A MORE EFFECTIVE MIXDespite more women now entering the accountancy profession than men, gender stereotyping is still holding them – and the whole profession – back

28

AP_F_gender.indd 28 12/04/2012 13:11

caption style

however that gender bias in Hong Kong’s accountancy sector is less than in mainland China.

‘On the mainland, the situation is better in multinational corporations. In traditional firms, more senior positions tend to be held by men,’ Choi says.

But according to legislative councillor for accountancy Paul Chan, ‘gender inequality is not so serious’ in the sector.

‘It is true that more men hold senior positions than women. It was because the total male population was much more than women in the past,’ says Chan, who is also past president of ACCA Hong Kong. ‘But in the past 10 years, there have been more women coming to the trade. The female population to male in the profession is almost 50:50.’

He says that women have taken up many senior positions in recent years, including director of accounting

services, deputy director of audit, and the chief

executive of the HKICPA.‘Many senior partners in the Big

Four are women,’ he adds.Choi observes that gender inequality

is changing, because female accounting graduates have outnumbered males in recent years.

At PolyU, out of the 176 students admitted to the 2011–12 BBA accountancy programme at the School of Accounting and Finance, 94 are female, according to Tsui.

Paternity issuesMcFerran says that gender stereotyping affects men too. ‘Hong Kong doesn’t offer paternity leave. Australia offers up to 18 weeks paternity leave. And the UK offers up to 20 weeks,’ he says.

Women are also not given enough time to spend with their newborns, causing some to quit their jobs. The average maternity leave in developed countries is 13 weeks on full pay. But women in Hong Kong have just 10

weeks’ maternity leave and are paid fourth-fifths of their monthly salary.

Family friendly practices in workplaces are also lacking. Only 2% of the surveyed respondents said that there is onsite childcare in their firms, and only 4% reported having childcare subsidy. Only 30% respondents said their companies offer flexible scheduling or let their staff work from home.

To solve the problem, Cheung says the government must provide sustained education in schools and the community to change the culture. The EOC, which provides tailored training workshops to financial institutes, urges the government to invest much more in childcare support, as well as legislating for rights such as paternity leave.

Cheung, McArdle and others also urge businesses to promote gender diversity by providing fairer promotion opportunities and enhanced childcare policies for both male and female employees. These include allowing job sharing, home working, near workplace childcare facilities, and childcare leave. ‘They should not have stereotypes on women, and focus on their abilities. Companies must realise gender diversity is an asset,’ Cheung says.

McFerran says that the finance industry should also promote policies to help both men and women spend more time with their families.

‘As the financial services industry grows, it will increase competition for talent,’ McFerran says. ‘Making sure that its expectation gap has been bridged will be a significant way for companies to help hold on to their valuable talents and ultimately grow their businesses.’

Sherry Lee, journalist

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AP_F_gender.indd 29 12/04/2012 13:11

Professor Dr Vuong Dinh Hue was appointed minister of finance in 2011 following a five-year tenure as auditor general of the State Audit of Vietnam. A respected and highly regarded figure within the accountancy profession, Professor Hue has been at the forefront of education in Vietnam, serving concurrently as dean of the accounting faculty and vice rector at the Hanoi University of Finance and Accounting over a number of years.

Q What challenges do you face as Vietnam modernises its business infrastructure and develops its accountancy profession? A The weak infrastructure is a ‘bottleneck’ in Vietnam’s current development. Vietnam considers the synchronous and modern infrastructure development one of the strategic breakthroughs in socioeconomic development of the country by 2020. The biggest challenge for the Ministry of Finance and myself as the minister is how to mobilise and allocate resources in the economy – including the state budget, government bonds, official development assistance and capital from all economic components – in the best way to meet the huge demand today. Moreover, it is also challenging to use these resources most effectively, ensuring the balance between borrowing and paying capacity, financial security and public debt safety.

To the accountancy and auditing sector in Vietnam today, the biggest challenge is to develop and complete the regulations of accounting (laws and norms) according to international practices and make them consistent with the specific conditions of Vietnam, especially the application of the

principle of ‘market price’. In addition, the sector’s management organisation and operation supervision need to be reformed so as to be compliant with the law, effective and helpful, to promote the service development to ensure the transparency of economic and financial information, as well as to support sound economic decisions. In particular, it is critical to improve the quality of the sector’s human resources. They must be talented – shown in knowledge, experience, profession – and ethical enough to work in the state’s management bodies, career organisations and in every company.

Q What do you seek to achieve as minister of finance? Why? A Vietnam’s finance sector, as well as myself, are always directed to a transparent, strong and sustainable finance industry for the sake of the prosperity of people and the strong nation of Vietnam. To the accountancy and auditing sector, I would like to promote the highest value of accounting tools to improve the financial transparency and accountability of all agencies and units, organisations and individuals, contributing to make the country’s finance industry healthy.

Q What did your experiences at the State Audit of Vietnam teach you? A My 10-year experience at the State Audit of Vietnam, including five years in the position of auditor general, have helped me get a sufficient overview on the financial status, macro and micro economic management, including both strengths and weaknesses. This is very useful for me in my new position. More importantly, I understand the values and benefits of audit and I am

continuing to increase those values and benefits, together with my colleagues, the State Audit, audit firms and the auditing professional associations.

Q How important is the relationship that ACCA has in Vietnam with the Ministry of Finance and the State Audit of Vietnam in the development of the accountancy profession? A ACCA is the first international professional body to place its office in Vietnam and has made a remarkable contribution in the development of our accountancy sector in recent years. With the aim to internationalise Vietnam’s accounting personnel, the Ministry of Finance signed a memorandum of understanding with ACCA in 2003 to organise examinations for ACCA certification and Vietnam’s accountant certification. This partnership programme truly brings the opportunity for local auditors to become international auditors. The programme has attracted over 5,000 students and about 500 people have received ACCA certificates.

I appreciate the effective cooperation between ACCA, the Ministry of Finance and the State Audit in developing and completing the legal framework, professional standards and especially collaborating with Vietnam’s universities and professional organisations to train and update knowledge and broaden experiences for accountancy staff in Vietnam.

Q How has the accountancy profession changed in Vietnam? And how do you envisage it developing over the next few years? A Vietnam’s accountancy industry has made remarkable progress. A new

VISIONARY ACCOUNTANTIn an exclusive interview with Accounting and Business, Vietnam’s minister of fi nance, Professor Dr Vuong Dinh Hue, talks about accountancy’s role in the country’s growth

*THE MINISTRY OF FINANCE

30 Interview

AP_F_MinHue.indd 30 12/04/2012 13:25

Over the past five years,Vietnam’s Ministry of Finance (MoF) has survived the global financial crisis without a crash and worked to tackle high inflation. But although Vietnam’s inflation has slowed for five consecutive months (to 17.17% in January 2012), it’s still high and the MoF has recognised that more needs to be done.

The Independent Auditing Law, which came into effect on 1 January 2012, overcomes the limitations of previous decrees and will improve and develop services. Notably, it gives the MoF responsibility for managing independent auditing.

The MoF has sought to control the state budget and work towards growth, entering into an agreement in February with the State Bank of Vietnam to tighten cooperation and spur information exchange. The two sides would jointly develop and supervise the financial market and manage taxation and customs affairs, in particular tax collection,

import and export of precious metals, and money trafficking and laundering, as well as working together on the international stage.

The MoF is set to develop the country’s banking and investment industry in accordance with a directive signed by prime minister Nguyen Tan Dung. The directive outlined steps to be implemented between now and 2020 to improve legal frameworks, boost the quality and number of listed companies, attract new investors, allow foreign investors greater access to the local market, and safeguard investors. The MoF will be responsible for restructuring stock market operations, securities firms and rules governing listed companies so that they meet international standards. In addition, it will shortly complete the revision of regulations aimed at boosting the domestic bond market, and allow the establishment of new investment institutions, including voluntary pension funds.

*THE MINISTRY OF FINANCE

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market-oriented legal framework on accounting – from the highest level of accounting law and the law on independent audit to the benchmark system, accounting mechanism and professional ethics standards – has been formed; the enterprise system providing accountancy services as well as human resources has been developed; the activities of accountancy professional organisations have been carried out and strengthened; and partnerships with international organisations such as the International Federation of Accountants, Confederation of Asian and Pacific Accountants, the ASEAN Federation of Accountants and ACCA have been reinforced.

In the future, given the country’s progress and extensive integration into the global economy, Vietnam’s accountancy sector will have big potential to develop strongly. Accounting and auditing are not only the tools of economic and financial management; it continues to be a service sector and also a career recognised and highly appreciated. The Ministry of Finance is currently developing strategies for accounting development vision to 2020. Its targets are to complete and fully establish the legal framework and professional standard system, to expand the service market and to develop human resources, as well as to improve management and supervision capacity in this industry. The number of accountancy companies, accounts and auditors are expected to double by 2015 and triple by 2020 in order to meet the increasing demand of the

economy. The development in terms of quantity, quality and professional capacity will, step by step, confirm Vietnam’s accountancy profession locally and internationally.

Q You were awarded honorary membership to ACCA for your extraordinary contribution to the development of the accountancy profession in Vietnam. How did it feel to be acknowledged in this way? A I have and will continue to coordinate and work closely with ACCA, the accountancy professional organisations and the state authorities to promote the vigorous growth of the industry in Vietnam. The main priorities in the coming period include completing the guidance documents for implementing the Independent Audit Law; updating, amending and supplementing Vietnam’s accounting standards to be closer to international practices; studying the Accounting Law and submitting to the National Assembly amendments and supplements; and especially enhancing training and development activities for experts, both in terms of quantity and quality, with importance attached to professional ethics.

Q You are a professor who has spent many years teaching. How much did you enjoy your career in education? A I have spent nearly 23 years teaching accounting at graduate, postgraduate and doctorate level, and I feel appropriate for this job. Teaching always gives me an exciting pressure; you are always required to broaden knowledge, enrich experiences

Professor Dr Vuong Dinh Hue, pictured with ACCA chief executive Helen Brand, was made an honorary member of ACCA for contributions to the development of the accountancy profession in Vietnam, particularly for his role in supporting education. The award was given to Professor Hue by ACCA president Dean Westcott in October

Born on 15 March 1957 in Nghe An province, Professor Hue has a degree from the Academy of Finance in Hanoi and a PhD from the University of Economics in Bratislava, Slovakia.

2011–PRESENTMinister of Finance.

2001–11Deputy auditor general, State Audit Office of Vietnam, going on to become auditor general.

1979–2001Lecturer, Hanoi University of Finance and Accounting (HUFA), going on to become deputy dean, acting dean, dean and vice rector.

and improve skills in the accounting and teaching professions. Teachers’ happiness is to see their students succeeding and growing, and to feel fresh in their life and works.

Q What advice would you give today’s graduates in Vietnam who are thinking about embarking on a career in accountancy or finance?A Accountancy in particular and finance in general will be always an attractive and challenging career. You should always take advantage of every opportunity to improve your knowledge, experiences and skills and, more importantly, to learn to be careful and have good ethics. The development of Vietnam’s accountancy industry and its expansion into the regional and global market absolutely depend on the capacity of human resources, especially the level of professional, foreign language (English) and information technology skills.

Professor Hue was interviewed by AB’s Asia editor, Colette Steckel

PROFESSOR HUE

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AP_F_MinHue.indd 32 12/04/2012 13:26

Comment

It is no surprise that there is not yet a universal acceptance of integrated reporting (IR), which combines financial and non-financial information in corporate reporting. Such a big and forward-looking idea gains believers a few at a time, and complete buy-in – if it ever comes – will take years.

Meanwhile, it is important to address the concerns of the naysayers, in order to hasten the pace of conversion.

One of the questions surrounding IR stems from the perception that it is a concept championed only by accountants. The gripe is that the existing financial reporting standards already give companies a lot of reporting to do, and that accountants have no business loading directors and managers with more reporting responsibilities.

However, this view does not take into account that the key proponent of IR is the International Integrated Reporting Council (IIRC), whose mission is to ‘create a globally accepted IR framework which brings together financial, environmental, social and governance information in a clear, concise, consistent and comparable format’.

It is made up of an international cross-section of leaders from the corporate, investment, accounting, securities, regulatory, academic and standard-setting sectors.

The IIRC’s composition tells us that the push for IR cannot be driven by any one party; the initiative has to involve all stakeholders.

More than the bottom line[It doesn’t matter who is pushing for integrated reporting, says Errol Oh, change must be welcomed as

stakeholders increasingly want to know how companies’ activities impact the environment and society

At the same time, there is no denying that the accountancy profession has a central role in the promotion of IR. Although the work of accountants traditionally focuses on financial information, there is no reason to believe this will be their sole contribution to an integrated report.

After all, as with other professionals, accountants are expected to be credible and competent, and they already have plenty of experience and expertise with corporate reporting.

This is not to say the leap into IR will be effortless. Accountants

need to deepen their understanding of environmental, social and governance (ESG) aspects of business and firms will probably find it worthwhile to set up in-house ESG units.

Accountants should see this as a great opportunity to expand their capabilities and to strengthen their position as the people who enable others to have trust and confidence in corporate reports.

So, yes, there is commercial justification for the accountancy profession to support the transition to IR. However, the growing demand for IR is not manufactured by accountants.

Sustainability and corporate social responsibility are on the way to becoming cornerstone concepts of the corporate world. Stakeholders are increasingly keen to know how a business makes its mark not just in terms of finances, but also through its impact on society and the planet. Eventually, all companies will

also be judged by their performance in ESG

matters. This is why it makes sense for IR to find a place in the corporate sector.

Directors and managers will do well to lead change instead of having to be dragged

kicking into adopting IR.In the end, it does not matter

who spearheads the campaign to popularise IR. We should

instead focus on striving towards the best outcome possible.

Errol Oh is executive editor of The Star

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AP_COM_EO.indd 33 16/04/2012 15:11

Comment

The hottest reads on the website I edit are usually stories about salaries. I’m not surprised. At the end of the day, dollars and cents are still the key determinants of recruitment and retention.

There are certainly many interesting nuggets in the recently issued 2012 Hays Salary Guide. For example, finance professionals with expertise in cost management, regulatory issues, product control and corporate governance and with realistic salary expectations ‘can be confident that 2012 will provide them with a good opportunity to secure a challenging career move and increase in package’, the report’s authors write.

However, the wages reported are in local currencies, which make it difficult to compare inter-Asian market rates – something that is increasingly important as Asia’s finance professionals become expats in China, Hong Kong, Singapore and even Japan.

The numbers make more sense when the currencies are converted into purchasing power parity (PPP) dollars. PPP is a methodology used by the World Bank to factor the cost of living in GDP numbers. In the case of salaries, the equivalent PPP dollars for salaries in low-cost China will be higher than the equivalent PPP dollars for salaries in high-cost Japan.

Indeed, when CFO Innovation converted the Hays-reported currencies into PPP terms, CFO salaries in China turn out to be higher, at PPP$212,000 to PPP$528,000 a year, compared with CFO salaries in Japan

Are you paid enough?[Job satisfaction may not just be about the money, but fi nance professionals must make sure they are

compensated at or above market rates to promote strong recruitment and retention, says Cesar Bacani

(PPP$116,000 to PPP$241,000). This is because cost of living is lower in China than in Japan.

In PPP terms, CFO salaries in Hong Kong are higher than in either China or Japan, at PPP$221,000 to PPP$516,000 a year. That’s because in nominal US dollars, the value of CFO salaries in Hong Kong is is higher than in China, offsetting the lower

cost of living in China. On the other hand, the cost of living in Hong Kong is cheaper than in Japan, offsetting the higher value in nominal US dollars of CFO salaries in Japan.

The highest CFO salaries, however, are in Singapore, at PPP$273,000 to PPP$570,000 a year. That’s up to 23% higher than in Hong Kong. Singapore salaries go a longer way because housing and education are cheaper in Singapore compared with Hong Kong.

One other question that the Hays guide answers is how salaries in

practice compare with salaries in business. The survey suggests that

it is more financially rewarding to head

internal control in companies rather than work as a

senior manager in an accountancy firm.

In Hong Kong, a senior audit manager can expect to earn

the equivalent of US$97,000 to US$142,000 in annual salary

and bonuses. In contrast, as head of internal audit in a company, he or she can expect a compensation package (excluding bonuses) of up to US$193,000. That’s 36% more than the top salary for a senior audit manager in an accountancy firm.

So there you go. In pure salary terms, it is more lucrative for accountants to be in business rather than in practice. And the most financially rewarding place to work is Singapore, followed by Hong Kong.

But don’t forget to factor in non-financial elements when making career

choices. Job satisfaction, a clear career path and a nurturing environment are also important.

Cesar Bacani is editor-in-chief of CFO Innovation Asia

34

AP_COM_Cesar.indd 34 12/04/2012 14:39

Q Which of your services is most in demand? A For the private sector such as banks and investment companies, our flagship product allows them to produce a rapid analysis of many underlying clients in a relatively short period of time. Among our public-sector clients, government ministries have a preference for our programme that provides them with the tools and expertise with which they can promote SME (small and medium-sized enterprise) development. And our VWO (voluntary welfare organisation) and NGO (non-governmental organisation) clients prefer an economic scorecard product.

Q Do you see the use of your scorecards becoming more widespread? A We certainly do. We see more public agencies and NGOs wanting to ensure that their personnel’s technical, functional and behavioural aspects are aligned to those of the organisation. We also see foreign businesses wanting to set up regional headquarters in Singapore.

Q How can the scorecards work for different organisations? A Each of our scorecards can be customised to meet the respective needs of our clients at very competitive pricing. The interface and analyses can be modified so that they are relevant to the client.

Q What plans do you have for this year? A We have successfully formed a series of boards of advisers – chaired by prominent and highly capable people in their respective fields.

FAST FACTSLocations: South-East Asia, China, Hong Kong, India, the Middle East, UK and USClientele: Private institutions, NGOs and government agenciesFavourite book: Artificial Intelligence by George F Luger and William A Stubblefield

NEDS IN INDONESIA DO WELLNon-executive directors (NEDs) in Indonesia earn more than their peers in Singapore, Malaysia and Thailand, according to a recent Hay Group report. Boards in Singapore also meet the least often and hold the least number of committee meetings compared with the other three countries. The report, which analysed data from 200 large companies in the four countries between 2008 and 2010, found that in 2010, median salaries for NEDs in Indonesia topped the rankings at US$178,600, while those in Singapore took home US$75,300. NEDs in Thailand were paid US$46,600, and those in Malaysia received US$46,300. Much of the pay came in the form of bonuses in Indonesia (52%) and Thailand (33%), while remuneration for NEDs in Singapore was mostly composed of director’s fees (92%) and share-based compensation (8%).

MAJOR COMPANIES TEAM UPSoftware and information services provider ChinaSoft International and information and communication technology (ICT) company Huawei have formed a new joint venture (JV) company specialising in software outsourcing. The JV, 60% owned by ChinaSoft and 40% by Huawei, is based in Xi’an’s High-Tech Industries Development Zone. It is expected to generate 3.6 billion yuan by its third year of operation. ChinaSoft, which is listed in Hong Kong, has 15,000 staff located in 25 cities around the world, while Huawei provides ICT solutions in more than 140 countries.

The view from: Singapore: M Nazri, CEO, Vector Scorecard Asia-Pacifi c Group

35 Corporate The view from M Nazri of Vector Scorecard Asia-Pacifi c Group; how to build better boards

39 Practice The view from Paul Lee of RSM Chio Lim; how proposals to introduce mandatory auditor rotation have been met in the US and Asia

35Corporate

AP_YCORP_intro.indd 35 16/04/2012 14:38

‘IT IS COMMON THAT THE CHAIRMAN IS THECEO. PUT SIMPLY, SUCH A DIRECTOR EMBODIES THEEXACT REVERSE OF AN INDEPENDENT DIRECTOR’

To help optimise board performance, the Audit Committee Institute (ACI) Malaysia developed The Directors’ Prism: Building Better Boards. This guide helps organisations to challenge the status quo and elevate board oversight and corporate governance.

ACI Malaysia, sponsored by KPMG, was set up to educate audit committee members and thereby promote effective audit committee processes.

Defining the prismThe Directors’ Prism is a diagrammatic expression of the board of directors and how it relates to other players in the corporate ecosystem. The board sits at the pinnacle of the prism, symbolising its oversight of the entire organisation. It is supported by the various board committees to which it cascades its responsibilities – audit,

nomination, risk, and remuneration – at the centre of the prism.

Meanwhile, management and auditors form the base of the prism, denoting the board’s reliance on their services to execute its oversight responsibilities. The collective stakeholders surround the prism, seeking assurance from the board that the company is being well-governed and will discharge its obligations.

Seven questionsTo advance corporate governance, the Directors’ Prism advises companies to ask seven key questions. While these seven questions were compiled to help boards achieve successful

oversight, they are not exhaustive; instead, they are a starting point for further assessment and incremental improvements by boards.

1 What makes up an ideal board? Board quality depends on a diverse mix of factors such as the competence of the chairman, collective board expertise, and the perceived independence of non-executive directors. ‘The essential characteristics of a strong chairman are often personal attributes,’ namely, clarity of vision, strong leadership qualities, and the personal courage to manage tough issues.

Collectively, the board should demonstrate broad knowledge, sound judgement, unblemished integrity, and the courage and ability to challenge and probe into difficult issues.

Individual directors should possess the expertise relevant to the company’s line of business.

‘It is important that the board is not reliant solely on management to provide it with such expertise,’ warns the guide. Meanwhile, audit committee members must be financially literate and at least one member of the audit committee must fulfil the financial literacy requisite under Bursa Malaysia’s listing requirements.

The senior independent non-executive director plays an important role in the board as the director to whom concerns may be conveyed, especially in a landscape where board independence may be compromised.

‘In Malaysia, it is common that the chairman of the board is the managing director or the CEO. Put simply, such a director embodies the exact reverse of an independent director.’

2 How can the board be sustained? Assess director remuneration: compensation should be sufficient to compensate directors, while removing conflicts or biases due to excessive remuneration. Provide the board with sufficient resources to discharge its duties, including access to company secretarial services.

Directors should be provided with ongoing professional development training to enable them to discharge their fiduciary duties. Also recommended are formal induction programmes for new directors to familiarise them with their duties, current issues and the organisation.

Finally, boards should be cognisant of related party transactions involving directors, which can compromise board independence and corporate governance.

3 How can the board’s effectiveness be enhanced? The guide recommends holding private or ‘in camera’ board meetings with only directors present prior to management joining in, as well as holding audit committee meetings ‘in camera’ with the external auditors.

It is also important to identify issues early and keep communications channels open with management and auditors in the run-up to the year-end board meeting. ‘Questions of substance should not be raised for the first time at the year-end board meeting.’

Boards should meet as frequently as company matters require, while allowing sufficient time in between

Call for better boardsA challenging business environment, increased stakeholder expectations and enhanced regulatory scrutiny means the pressure on directors to perform has never been tougher

36 Corporate

AP_YCORP_betterboards.indd 36 12/04/2012 13:26

Source: Audit Committee Institute Malaysia/KPMG in Malaysia

37


‘RISK MANAGEMENT SHOULD ALWAYS BE ON THEBOARD AGENDA, DEMONSTRATING THE BOARD’SCLEAR OWNERSHIP OF RISK MANAGEMENT OVERSIGHT’

meetings for work to be done. The board committees should submit reports of sufficient depth to the chairman to enable the board to fulfil its oversight duties.

Finally, boards should conduct self-evaluation to assess its performance and effectiveness, perhaps to the extent of requesting feedback from senior management.

4 Is the board cognisant of company strategy? Are directors alert and sceptical regarding earnings management? ‘Directors need to know enough about the company to recognise when inappropriate earnings management practices are present.’

The guide warns boards that ‘specific areas of attention warrant special attention. They can be particularly vulnerable to interpretations that may obscure financial volatility and adversely affect the quality of reported earnings.’ These areas are revenue recognition, changing estimates, abuse of the materiality concept and capitalisation and deferral of expenses.

Boards should also take note that in Malaysia, the Companies Act 1965 states that the board, and not management, is responsible for the preparation of the company’s financial statements. The act makes no distinction between executive or non-executive directors – all are equally accountable, notes the guide. Thus, it is critical that the board keeps abreast of financial reporting developments to discharge its duties satisfactorily.

5 Is the board addressing the risks facing their organisation, especially financial risks? ‘Risk management should always be on the board agenda, demonstrating the board’s clear ownership of risk management oversight.’

Directors on the boards of owner-managed companies, the most common type of business in Malaysia, face a challenging set of risks, such as the lack of a formal management structure and established corporate governance programmes and dominant leadership which strains existing controls and may set the wrong tone at the top, notes the guide.

The board should also be alert to fraud risk facilitated by technological advances, and ensure that an effective whistleblowing mechanism is in place to protect employees who make disclosures in the public interest.

6 Is full use being made of external and internal auditors? Since the external and internal auditors are key drivers in facilitating the board committee’s oversight duties, an efficient board makes full use of the two.

How can an effective relationship be established with the external auditor? The audit committee is advised to develop policies to appoint and remove the external auditor, to safeguard auditor independence, to understand the audit cycle and to assess its performance.

Since the listing requirements make it compulsory for listed companies to have internal auditors, the audit committee should determine that the internal and external audit functions complement and coordinate their audit efforts to optimise assurance and the control environment.

7 Can the board see the bigger picture? Boards are advised to focus on current and emerging issues that may affect their organisations, such as regulatory developments and economic shifts. For example, the Malaysia Competition Act 2010 which took effect on 1 January 2012 features two major prohibitions – anti-competitive agreements and abuse of dominant positions – that could affect business as usual.

Boards should also watch out for round tripping – the act of artificially inflating volume and revenues, which in reality adds no profit – which is gaining keener scrutiny from regulators.

Boards should also be mindful of trends favouring corporate sustainability, government diversity policies to place more women on boards, and disgorgement, which is ‘the repayment of profits arising from irregularities in trading shares or other securities.’

To read the report, go to http://tinyurl.com/cwfl9zf

Report summary by Nazatul Izma Abdullah, journalist

38 Corporate


Q What are your expectations for the coming year? A From experience, we have come to expect uncertainties, shorter economic cycles and opportunities in downturns. Markets have generally been positive in the first quarter and we will monitor the situation closely. We continue to see our clients growing

and expanding their businesses in this region. We have been advising them on several fronts, from structuring crossborder investments, to mergers and acquisitions and transaction support. As for Singapore, we see significant interests in the governance, risk and consulting business among listed company boards.

Q What is the biggest challenge you face? A Given Singapore’s tight employment market, I would say it is about attracting and retaining individuals who share our firm’s values and the passion to go the extra mile in serving clients.

Q What’s your top priority right now? A Many of our new clients are from referrals due to our focus on quality service. My top priority is to ensure we keep to this promise.

Q What lessons have you learnt from recent experience? A There are no short-cuts in successfully growing a professional services firm. You need time to bring on board and develop leaders, build the firm’s culture, ensure processes are in place and attract the right target clients. As leaders, we also need to ensure we have a succession plan in place to groom the next generation of leaders.

FIRM FACTSFirm structure: RSM Chio Lim is the audit and tax arm of Chio Lim Stone Forest (CLSF), the largest accountancy firm outside the Big Four in SingaporeStaff numbers: CLSF has approximately 630 staff in Singapore and 300 in five locations in ChinaFavourite activity: Running at dawn for 45 minutes to an hour, taking time to reflect and prepare for the day ahead

DELOITTE QUITS TWO AUDITS Deloitte resigned as auditor of two Chinese companies listed in Hong Kong within days of each other. On 22 March, the firm said it had quit as auditor for the Chinese milk formula products-maker Daqing Dairy Holdings, hours after its shares were suspended. A week earlier, Deloitte had resigned from auditing Boshiwa International Holdings, a clothing retailer which holds the licence to manufacture Harry Potter and Bob the Builder-branded children’s clothes, reportedly citing that it was not satisfied with the responses to questions about some of the company’s transactions. This included a recorded pre-payment of 392 million yuan to a supplier. After its shares were suspended, Boshiwa said it would appoint a new auditor and was considering establishing a special investigative committee.

CAPGEMINI WINS MSTD TENDERConsulting, technology and outsourcing services provider Capgemini has won a tender issued by the Maharashtra Sales Tax Department (MSTD) to implement a business intelligence and data warehouse solution. The MSTD contributes almost 55,000 crore to the coffers of the Maharashtra state government, which oversees India’s second most populous state and whose capital is Mumbai. Capgemini’s solution will enable the MSTD to analyse economic parameters to set targets for revenue collection. It is also designed to help the department expand its taxpayer base and prevent tax evasion losses.

The view from: Singapore: Paul Lee, managing partner, RSM Chio Lim

39 Practice The view from Paul Lee of RSM Chio Lim; how proposals to introduce mandatory auditor rotation have been met in the US and Asia

35 Corporate The view from M Nazri of Vector Scorecard Asia-Pacifi c Group; how to build better boards

39Practice

AP_YPRAC_intro.indd 39 16/04/2012 14:39

Since the early 1970s, auditor rotation has been the subject of some debate in America and elsewhere. With the recent financial market crises, the topic has again reached the public policy domain with the US Public Company Accounting Oversight Board’s (PCAOB) Concept Release on Auditor Independence and Audit Firm Rotation on 16 August 2011. At that time the PCAOB reported that, for the largest 100 companies (based on market capitalisation), auditor tenure averaged 28 years, and 21 years for the 500 largest companies.

According to PCAOB chairman James Doty, the main reason to consider auditor term limits is that ‘they may reduce the pressure auditors face to develop and protect long-term client relationships to the detriment of investors and our capital markets’. More specifically, the release states: ‘By ending a firm’s ability to turn each new engagement into a long-term income stream, mandatory firm rotation could fundamentally change the firm’s relationship with its audit client and might, as a result, significantly enhance the auditor’s ability to serve as an independent gatekeeper’ (PCAOB Release No. 2011-006, page 9).

Audit deficienciesIn the concept release, the PCAOB, while indicating that improvements in the rigour of inspections and the remediation process have improved audits, expressed concerns about both the frequency and the type of audit deficiencies it continues to find. For example, in its inspections of the largest accounting firms from 2004 to 2007, it noted:

‘Inspectors continue to find deficiencies in important audit areas, both established and emerging. These

areas include critical and high-risk parts of audits, such as revenue, fair value, management’s estimates, and the determination of materiality and audit scope. These deficiencies occurred in audits of issuers of all sizes, including in some of the larger audits they reviewed. In some cases, the deficiencies appeared to have been caused, at least in part, by the failure to apply an appropriate level of professional scepticism when conducting audit procedures and evaluating audit results. In addition, even in areas where inspectors have observed general improvement, deficiencies continue to arise.’

In particular, the PCAOB noted that the audits in which inspectors faulted the firms’ application of professional scepticism and objectivity included ‘some of the larger audits inspected’ (pages 5–6).

With this in mind, the release focused on the role of mandatory auditor rotation in improving independence and objectivity in audits, and asked for feedback on the following key issues, among many others:

* Will rotation significantly enhance auditors’ objectivity, professional scepticism and ability and willingness to resist management pressure?

* What effect would a rotation requirement have on audit costs?

* Would a periodic ‘fresh look’ at a company’s financial statements enhance auditor independence and protect investors?

* If the board decided to move forward with the proposal, what would be an appropriate term?

* To what extent would a rotation requirement limit a company’s choice of an auditor?

With the comment period closing in December, we see the balance of the argument in the ‘nay’ camp, with the

majority of corporate respondents decidedly against mandatory rotation. More specifically, they suggest that in today’s complex environment a deep level of knowledge around a company and its industry, its operations and financial history is mandatory in conducting an effective audit, which calls into question the wisdom of shortening engagements. Under these circumstances, rotation will result in less effective audits, not the other way around. For example, says Douglas Muir, CFO of Krispy Kreme Doughnut Corporation, ‘Forced rotations may remove valuable institutional knowledge from the audit process precisely when the audit committee believes that such expertise is necessary for the protection of investors and other users of financial statements.’

Cost concernAlso, at a time when the US economy is still struggling to regain its economic footing, costs are the biggest concern, with rotation potentially significantly increasing audit fees and related expenses. As Scott Kuechie, executive vice president and CFO of Goodrich Corporation, explains: ‘The cost of the audit would most likely increase significantly as more audit hours would be required to learn the accounting and processes at the new client. Likewise, the cost of client support would also increase to support the auditors.’ Therefore, he concludes, ‘We do not believe that the benefit of mandatory auditor rotation would exceed the cost.’

And what do the auditors have to say about mandatory rotation if in fact there is an opportunity to increase audit fees? This time, the auditors seem to be decidedly in agreement with corporate America. More specifically, Deloitte and Touche (the only Big Four firm to have responded in writing to the proposal)

Little support for sell-by datesIn the wake of reporting catastrophes, the PCAOB is proposing mandatory auditor rotation in the US. But is this a solution in search of a problem, asks Ramona Dzinkowski

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41


‘THE COST OF THE AUDIT WOULD MOST LIKELY INCREASE SIGNIFICANTLY AS MORE AUDIT HOURSWOULD BE REQUIRED TO LEARN THE PROCESSES’

makes clear that they really don’t think auditor rotation will cut it when it comes to ‘increasing auditor independence, objectivity and professional scepticism’. CEO Joe Echevarria, commenting on behalf of Deloitte, concludes the following based on ‘an objective assessment of the literature on mandatory rotation’:

* Research studies show that restatements and frauds are less likely to occur with longer auditor tenure.

* The majority of studies on mandatory rotation reach an unfavourable conclusion on the balance between costs and benefits.

* If mandatory rotation were required at the 500 largest US companies, a 10-year phase-in process would entail 50 auditor changes every year compared to the recent average rate of five per year.

* The economies and capital markets of countries that have adopted mandatory rotation are not directly comparable to those of the US. Some countries that have adopted the policy have discontinued or curtailed it. Research that is available tends to be unfavourable on the effects of mandatory rotation.

Sarbox sufficient?Finally, as to the need for the PCAOB to explore extra rules around auditor independence, others suggest that Sarbanes-Oxley has actually covered it off quite nicely. Says Robert C Greving, chairman of the audit and enterprise risk committee of CNO Financial Group, a US$32bn holding company: ‘The rules put in place by the Sarbanes-Oxley Act charge the audit committee with the selection and oversight of the audit firm... We believe the audit committee is in the best position to evaluate whether the auditors are independent and objective and whether it is in the best interests of the shareholders to initiate the

process of selecting a new firm.’At the end of the day, would shorter

engagements have prevented some of the reporting and assurance catastrophes of the last two decades? Arnold Hanish, CFO of Eli Lilly, calls

into question any relationship between audit failure and audit tenure outlined in the PCAOB release: ‘We are not aware of any relevant data or evidence linking lengthy audit firm tenure to audit failures. In the release, the PCAOB attempts to draw a line between the numbers of audit failures identified as part of their inspection process and the tenure of the audit firm. In evaluating this relationship, it is important to note that the sample of audits that the PCAOB inspects is not a representative sample as a risk-based approach is utilised so that the board can focus their review on the most error-prone situations.’

He concludes that the evaluation of this topic as a concept release is ‘premature without the existence of any factual data to establish a clear link between mandatory audit firm rotation and increased independence,

objectivity and professional scepticism on the part of the auditor’.

Hanish suggests that in place of mandatory rotation, the PCAOB considers further limiting the scope of non-audit services the audit firm can provide to its audit clients. In particular, he calls for the PCAOB to be more prescriptive on all other non-audit services that can be provided, potentially limiting all advisory services. ‘We believe,’ he

says, ‘that action in this area may address the PCAOB’s

concern that the auditors are attempting to maintain good

client relationships at the expense of performing a quality audit to engage in more lines of business and provide additional services to the company.’

Other observers, like Richard Hawley, CFO of Nicor, also suggest that audit

rotation answers nothing. Having been on both sides of the situation (as an audit partner, a Fortune 500 and 1000 CFO and chair of a public company audit committee), he is ‘very concerned that consideration of mandatory rotation of audit firms is a wonderful theoretical solution looking for a non-existent problem’. Furthermore he questions the need for yet more government intervention in corporate business. ‘My issue with the proposal are many,’ he says. ‘First, it presumes the company boards and management...are not capable of selecting firms that will live up to professional standards, and are in need of government assistance in making a change when necessary. I don’t believe there is any significant evidence to suggest that is the case.’

Ramona Dzinkowski is a Canadian economist and award-winning journalist

42 Practice


China’s plans for mandatory rotation for large publicly listed companies may put pressure on Hong Kong

Accountancy firms in Asia Pacific are distinctly unenthusiastic about the Public Company Accounting Oversight Board’s (PCAOB) Concept Release on Auditor Independence and Audit Firm Rotation.

In its letter to the PCAOB, CPA Australia opposed mandatory audit firm rotation due to a lack of clear evidence of the audit quality improvement that would result. The Japanese Institute of Certified Public Accountants said that mandatory audit firm rotation would make it difficult for audit firm personnel to gain specialised knowledge and experience in specific industries or areas and may also result in low-balling of audit fees, while increasing audit costs.

The Hong Kong Institute of Certified Public Accountants (HKICPA) is also against the system, as noted in its submission to the European Commission’s (EC) green paper on audit policy back in December 2010 and subsequent views on the PCAOB’s concept release.

‘There is nothing to suggest that mandatory rotation actually increases auditor quality,’ says Chris Joy, executive director of the HKICPA. ‘Our view is that the quality of audits is absolutely paramount and anything that might detract from audit quality is not a sensible move.

‘Simply put, we do not favour mandatory rotation. There are very few jurisdictions where it is required and I am aware that in places where it has been implemented it has been quietly dropped some years later. Basically, it doesn’t work,’ he says.

The evidence against mandatory rotation isn’t hard to find. The most widely quoted study is one from 2003 by the SDA Bocconi School of Management in Italy. It found that the practice increased concentration in the audit market and had a negative

impact on audit service costs while increasing startup costs and decreasing audit fees.

More findingsSimilar results emerged in a 2010 paper by academics from Hong Kong’s Lingnan University, the Chinese University of Hong Kong and the Central University of Finance and Economics in Beijing. They used data from China, which has a two-year cooling-off period, and found that audit partners with a lengthy partner-client relationship were more likely to rotate back to their former client. Furthermore, the rotation back of audit partners was associated with weakened audit quality in the second year of the cooling-off period.

As if this wasn’t enough to seriously undermine the sagacity of the

proposal, the majority of firms don’t want it. To date, 96% of submissions received from the profession oppose mandatory rotation.

In Hong Kong, the majority of firms agree with the HKICPA, lending their support to broader regulatory concerns about mandatory rotation. At KPMG International, for example, Hong Kong-based global chairman Michael Andrew says that the proposal would drive audit costs up in the long term and decrease audit quality.

‘Companies might be prepared to sacrifice quality for cost. Equally, if a firm can only do the audit for a set period and can’t get any other services it may as well reprice the audit because its ability to achieve proper margins and utilisation may be compromised. I suspect it would drive down costs in the short term but increase them in the

No evidence of successIt is not just companies in the US which have come out in opposition to the PCAOB’s proposals for mandatory auditor rotation – fi nance professionals in Asia are also sceptical

43


‘IN PLACES WHERE IT HAS BEEN IMPLEMENTED ITHAS BEEN QUIETLY DROPPED SOME YEARS LATER.MANDATORY ROTATION DOESN’T WORK’

longer term. It will also increase costs for the company transitioning the auditor because it will also have to change its internal auditor, valuer, actuarial consultant, maybe even its tax adviser,’ he says.

In terms of the impact on choice of auditor, Andrew highlighted the very real possibility of a greater concentration of audit firms in the marketplace. ‘The larger firms have more financial clout. Auditors may become circumspect about whether they take on some of these audits. If they’re doing significant work elsewhere economics may dictate that it’s better not to take on another audit, which is a relatively low-margin, high-risk exercise.

‘The overall impact of this being imposed could be significant. We’ll lose some audits and gain others but there’s a huge cost to doing this. Tendering for an audit is an expensive process. It ties up time in terms of the management, the company and the auditors. It’s hard to see the merits or the advantages or

even the problem that this proposal is trying to redress,’ he says.

In some respects, the profession needs to take a step back and determine the objective of mandatory rotation in order to tackle the bigger question of how to improve audit quality in the post-global financial crisis world. It is two-fold: first to deal with the risk of over familiarity, that audit firms working for a client over a number of years will lose their independence; and second, that by rotating the audit firms, this may provide more opportunities for the mid-tier firms.

To address the first objective, the issue of auditor firm independence, there is already a requirement for listed companies in Hong Kong to rotate the audit partners under the code of ethics in the Hong Kong Standards on Quality

Control. According to Albert Au, chairman of BDO, that is a more effective way of reducing familiarity threats than mandatory rotation.

‘Mandatory rotation increases the costs of an audit and also could inadvertently affect the quality of the audit itself, particularly for a large multinational client with complex businesses. Just to take on a client of that size and complexity would mean

that an audit firm would have to put in substantial investment in terms of educating its people and gearing up resources. If you were then to impose mandatory rotation in a six-year cycle, which is what the EC has put forward, this is too short for any efficiencies or knowledge to kick in,’ he says.

To provide mid-tier firms with more opportunities, Au notes that BDO’s experience in jurisdictions where mandatory rotation is imposed was that it had seen a greater concentration of business in the hands of the Big Four firms. ‘For a large audit client to get rotated out of BDO the chances are the business will then go to a Big Four firm. But for a Big Four audit client being rotated out the chance is smaller that the business will then go to a mid-tier firm. Our experience is that we suffer a net loss of large clients,’ he says.

Swimming against the tideOne firm, however, has come out in support of the proposals. In a letter to EC president José Manuel

Barroso and EC commissioner Michel Barnier, RSM International expressed support for reforming the audit profession, stating that the proposals will ensure more competition in the industry if

the extent of external auditor concentration at the top of listed company markets is reduced. The network said more action is

needed to reduce the market share of dominant audit networks and

maintain regular, fair and transparent tendering as well as joint audits to include non-Big Four participants.

Should the proposal move ahead in Hong Kong, the territory would likely look to mainland China for guidance, as mandatory auditor rotation for financial institutions and some state-owned enterprises has already been implemented. Furthermore, China’s Ministry of Finance is understood to be propagating rules that may require mandatory rotation for the very largest publicly listed companies. This may add to pressure on Hong Kong to align with capital markets over the border despite the fact that few in the territory are clamouring for it.

‘In Europe, most of the economic studies carried out on the proposals demonstrate that it’s detrimental to the economy not advantageous,’ Andrew says. ‘The only people who seem to like it are politicians and academics. No one in business, not many regulators and not many auditors think it’s a good idea.

‘The major audit firms have suggested a number of positive steps that are much more meaningful in terms of addressing the issues: for example, working more closely with prudential supervisors and being prepared to audit the assurance investor information, risk models and critical KPIs that an investor needs. This mandatory auditor rotation proposal misses the point of how to improve audit quality. I call it a lost opportunity.’

Kate Watson, journalist

44 Practice


Adverts_May12.indd 1 16/04/2012 17:49

A monthly round-up of the latest from the standard-setters

INTERNATIONAL

FINANCIAL REPORTINGThe International Accounting Standards Board (IASB) has issued amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards, addressing the treatment of loans from governments at below-market rates of interest. The amendments are mandatory for periods beginning on or after 1 January 2013 and provide first-time adopters with relief from full retrospective application of IFRS in respect of such loans. Earlier application is permitted.

AUDITINGThe International Auditing and Assurance Standards Board (IAASB) has issued a revised version of ISA 610, Using the Work of Internal Auditors. This addresses the responsibilities of external auditors when using the work of internal auditors. Revisions have also been made to ISA 315, Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment, to explain how the internal audit function and its findings can assist in making risk assessments.

The revised standards are effective for audits of periods ending on or after 15 December 2013.

In revising ISA 610, the IAASB has also agreed requirements and guidance on the responsibilities of external auditors where

they intend to use internal auditors to assist them during the audit. The IAASB has been liaising closely with the International Ethics Standards Board for Accountants (IESBA) and will only incorporate the further changes into ISA 610 when the IESBA has completed its deliberations on proposals to change the definition of engagement team.

The change in definition will address a perceived inconsistency in respect of the ability of external auditors to use a client’s internal auditors.

FINANCIAL STATEMENTSMany entities rely on their accountants to assist them in preparing their financial statements. The IAASB has issued a revised version of International Standard on Related Services (ISRS) 4410, Compilation Engagements, which addresses the practitioner’s role and responsibilities, including the considerations prior to accepting an engagement and the importance of quality control.

The wording of the compilation report is also expanded to clarify the role of the practitioner and explain the key features of a compilation engagement. The revised standard is effective for compilation reports dated on or after 1 July 2013.

Yvonne Lang, director, Smith & Williamson

SINGAPORE

FULL CONVERGENCE REVIEWIn March, the Accounting Standards Council (ASC) completed its review of the plans for full convergence of the Singapore Financial Reporting Standards (SFRS) with the International Financial Reporting Standards (IFRS) for Singapore-incorporated companies listed on the Singapore Exchange (Singapore-listed companies), and has concluded that full convergence will not be implemented in 2012, after the ASC identified key outstanding issues.

The timeline for full convergence will be adjusted in tandem with international developments, and will depend on the progress of several key projects undertaken by the International Accounting Standards Board (IASB) that are still in progress and not expected to take effect before 1 January 2015. The ASC had also noted that major capital markets such as the US are still in the process of working out their IFRS convergence plans.

The ASC will continue to work closely with the IASB and other regional standard-setters to ensure that the IFRS continues to reflect the economic substance of underlying transactions in Singapore and the Asian region. It will also continue to consult local stakeholders on the convergence implementation plans. More details at www.asc.gov.sg

EXPEDITED REVIEW PROCESSThe Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) jointly signed a memorandum of understanding (MOU) in March, on the Expedited Review Framework for Secondary Listings. The objective of the framework is to speed up the processing of secondary listing applications and relevant disclosure documents.

This framework is available to entities that are incorporated and whose shares are listed primarily on the main market of an exchange in jurisdictions that are signatories to the MOU. Where corporations satisfy the requirements, signatories will review applications within 35 business days, compared to the normal review time of up to 16 weeks.

Malaysia, Singapore and Thailand are the first three jurisdictions to sign the MOU. Other securities regulators and stock exchanges of Association of Southeast Asian Nations (ASEAN) jurisdictions may join by signing the MOU as and when they are able to satisfy the requirements.

More information at www.theacmf.org

MAS SIGNS MOU WITH ESMAIn March, the Monetary Authority of Singapore (MAS) and the European Securities and Markets Authority (ESMA) signed a memorandum of understanding (MOU) on the supervision of credit rating

46 Technical update

AP_T_Update.indd 46 12/04/2012 14:40

agencies (CRAs). The MOU paves the

way for the enhanced sharing of supervisory information between the two authorities for more effective supervision of crossborder CRAs operating in Singapore and within the European Union (EU).

In addition, ESMA also announced that it considers Singapore’s regulatory framework for CRAs to be in line with EU’s CRA regulations, thereby facilitating EU-registered CRAs to endorse credit ratings issued in Singapore. More details at www.esma.europa.eu

TAX COOPERATION ENHANCEDAlso in March, Singapore and Turkey signed a protocol to incorporate the internationally agreed standard for the exchange of information for tax purposes, on request, in their standing Agreement for the Avoidance of Double Taxation (DTA). The protocol will come into force after its ratification by both countries.

The full text is available at www.iras.gov.sg

Joseph Alfred, policy and technical adviser, ACCA Singapore

MALAYSIA

MINIMUM WAGE DETAILS On 21 March 2012, the government announced that the details of the highly anticipated minimum wage were due to be announced on 1 May – Labour Day. The

announcement will affect an estimated 3.2 million workers in the private sector.

CORPORATE GOVERNANCE CODEThe Securities Commission (SC) has released the Malaysian Code on Corporate Governance 2012 (MCCG 2012) as the first major deliverable of the Corporate Governance Blueprint 2011 launched last July.

The code is aimed at enhancing board effectiveness of listed companies through strengthening composition, reinforcing independence of directors and fostering commitment, and will be effective from 31 December 2012, although listed companies are encouraged to make an early transition. More at www.sc.com.my

AMENDMENTS TO STANDARDS The Malaysian Accounting Standards Board (MASB) has issued minor amendments to its financial instrument standards:

Amendments to Malaysian Financial Reporting Standards (MFRS)

* Mandatory effective date of MFRS 9 and transition disclosures (amendments to MFRS 9 (IFRS 9 issued by International Accounting Standards Board (IASB) in November 2009), MFRS 9 (IFRS 9 issued by IASB in October 2010) and MFRS 7).

* Disclosures – Offsetting Financial Assets and Financial Liabilities

(amendments to MFRS 7).

* Offsetting Financial Assets and Financial Liabilities (amendments to MFRS 132).

Amendments to Financial Reporting Standards (FRS)

* Mandatory effective date of FRS 9 and transition disclosures (amendments to FRS 9 (IFRS 9 issued by IASB in November 2009), FRS 9 (IFRS 9 issued by IASB in October 2010) and FRS 7).

* Disclosures – Offsetting Financial Assets and Financial Liabilities (amendments to FRS 7).

* Offsetting Financial Assets and Financial Liabilities (Amendments to FRS 132).

The amendments are effective for annual periods beginning on or after 1 January 2014 and are required to be applied retrospectively.

More information is available at www.masb.org.my

CRITERIA ON INCOMPLETE ITRFThe Inland Revenue Board (IRB) has issued the criteria on incomplete income tax return forms (ITRF). The IRB says that an incomplete ITRF will be returned to the taxpayer effective from 1 January 2012 and, for any late resubmission, penalty under subsection 112(3) of the Income Tax Act 1967 will be imposed.

The ITRF form is available at www.hasil.gov.my

Vilashini Ganespathy, head – technical and professional development, ACCA Malaysia

HONG KONG

ADVANCE PRICINGThe Inland Revenue Department (IRD) has released DIPN No.48 on Advance Pricing Arrangement (APA), explaining the process under which an APA may be granted. The programme will roll out from 2 April 2012.

ISLAMIC BOND CONSULTATIONAmendments are proposed in the Inland Revenue Ordinance and Stamp Duty Ordinance to provide a level playing field for common types of sukuk and their conventional counterparts in terms of profits tax, property tax and stamp duty liabilities. The legislative proposals also aim at attracting sukuk issuers to use Hong Kong as an Islamic finance platform. Comments are invited by 28 May 2012.

TRUST LAW REFORMA public consultation on the review of the Trust Ordinance was conducted in 2009. Based on the consultation conclusion, the Financial Services and the Treasury Bureau has prepared the detailed legislative proposals on trust law reform for further consultation, which cover clarification of trustees’ duties and powers, better protection of beneficiaries’ interests and modernisation of trust law. The consultation period will close on 21 May 2012.

Sonia Khao, head of technical services, ACCA Hong Kong

47

AP_T_Update.indd 47 12/04/2012 14:40

Bin the clutterClutter in annual reports obscures relevant information and makes it harder for users to identify the key points about a business’s performance, says Graham Holt

The effects of clutter have typically come in for little consideration by the preparers of annual reports, but the phenomenon is increasingly under discussion, with initiatives recently launched to combat it.

The Financial Reporting Council (FRC) in the UK is one organisation that has called for a reduction in clutter in annual reports. And the International Accounting Standards Board (IASB) commissioned the Institute of Chartered Accountants in Scotland (ICAS) and the New Zealand Institute of Chartered Accountants (NZICA) to make cuts to the disclosures required by a group of International Financial Reporting Standards (IFRSs), and to produce a report.

Clutter in annual reports can be a problem for users. It obscures relevant information and makes it more difficult for users to find the key points about the performance of the business and its prospects for long-term success. The main observations of a discussion paper, called Cutting Clutter, that was published by the FRC were:

* There is substantial scope for segregating standing data in a separate section of the annual report (an appendix) or putting it on the company’s website.

* Immaterial disclosures are unhelpful and should not be provided.

* The barriers to reducing clutter are mainly behavioural.

* There should be continued debate about what materiality means from a disclosure perspective.

It is important for the efficient operation of the capital markets that annual reports do not contain unnecessary information. It is equally important that useful information is presented in a coherent way so that users can find what they are looking for and gain an understanding of the company’s business and the opportunities, risks and constraints that it faces.

However, a company must treat all its shareholders equally in its provision of information. It is for each shareholder to decide whether to make use of that information. It is not for a company to pre-empt a shareholder’s rights by withholding information.

Too many rules?A significant cause of clutter in annual reports is the vast array of requirements imposed by laws, regulations and financial reporting standards. Regulators and standard setters have a key role to play in cutting clutter both by cutting the requirements they themselves already impose and by not imposing unnecessary new disclosures. A listed company may have to comply with listing rules, company

law, IFRS, the corporate governance codes and (if it has an overseas listing) any local requirements, such as those of the Securities and Exchange Commission (SEC) in the US. A major source of clutter is that different parties require differing disclosures for the same matter.

For example, an international bank in the UK may have to disclose credit risk under IFRS 7, Financial Instruments: Disclosures, the Companies Acts, the Financial Services Authority’s disclosure and transparency rules, the SEC rules and Industry Guide 3 as well as the requirements of Basel II’s pillar 3. One problem is that different regulators have different audiences in mind for the requirements they impose. Their attempts to reach more actual or potential users can lead to a loss of focus and structure in reports.

There may be a need for a proportionate approach to the disclosure requirements for small and mid-cap quoted companies that take account of the needs of their investors, as distinct from those of larger companies. This may be achieved by different means. For example, a principles-based approach to disclosures in IFRS, specific derogations from requirements in individual IFRSs or the creation of an adapted local version of IFRS for SMEs. Time and cost pressures can lead to

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48 Technical

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defensive reporting by smaller entities and to a preference for easy options, such as repeating material from a previous year, cutting and pasting from the annual reports of other companies and including disclosures that are of marginal importance only.

Behavioural barriersThere are behavioural barriers to reducing clutter. The threat of criticism or litigation is one. The risk of future litigation may outweigh any benefits from eliminating catch-all disclosures. As a result, preparers of annual reports are likely to err on the side of caution and include more detailed disclosures than strictly necessary to avoid challenge from auditors and regulators. Removing disclosures is seen as creating a risk of adverse comment and regulatory challenge. Disclosure is the safest option and therefore often the default position. Preparers and auditors may be reluctant to change this unless the risk of regulatory challenge is reduced. There is also a tendency for companies to repeat disclosures simply because they were in the annual report last year.

However, while explanatory information may not change from year to year its inclusion remains necessary to an understanding of aspects of the report. There is merit in a reader of an annual report being able to find all of

this information in one place. If the reader of a hard copy report has to go to a website to gain a full understanding of a particular point, it heightens the risk of making the report less accessible. And even if the standing information is kept in the same document but relegated to an appendix, that may not be the best place to facilitate a quick understanding of a point. A new reader may be disadvantaged by having to hunt in the small print for what remains key to a full understanding of the report.

Preparers wish to present balanced and sufficiently informative disclosures and may be unwilling to separate out relevant information in an arbitrary manner. The suggestion of relegating all information to a website assumes that all users of annual reports have access to the internet, which may not be the case. A single report may best serve the investor, by putting all the information in one reference document rather than scattering it across a number of delivery points.

Yet shareholders are increasingly unhappy with the substantial lengthening of reports in recent years. This has not resulted in more or better information but more confusion as to the reason for the disclosure. A review of companies’ published accounts will show that large sections such as the

TO GET THE QUESTIONS GO TO www.accaglobal.com/clutter

TO GET THE QUESTIONS GO TO


CPDunits on the web

statement of directors’ responsibilities and the audit committee report are almost identical.

Materiality should be seen as the driving force of disclosure, as its very definition is based on whether an omission or misstatement could influence the decisions made by users of the financial statements. The assessment of what is material can be highly judgmental and can vary from user to user. One problem may be that disclosures are being made because a disclosure checklist suggests they may need to be made, without assessing whether disclosure is necessary in a company’s particular circumstances. However, the whole point of such checklists is to include all possible disclosures that could be material. Most users of these tools will be aware that the disclosure requirements apply only to material items, but often this is not stated explicitly for users.

One of the biggest challenges is the changing audience for the annual report. Its original purpose was to report to shareholders, but preparers now have to consider many other stakeholders including employees, unions, environmentalists, suppliers, customers, etc. The disclosures required to meet the needs of this wider audience have contributed to the increased volume of disclosure. The growth of previous initiatives on going

concern, sustainability, risk, the business model and others identified by regulators as key has also expanded the size of the annual report.

Big but perfectly formedIt is not necessarily the length of the report that is the problem but the way in which it is organised. The inclusion of immaterial disclosures will usually make this problem worse but, in a well-organised report, users will be able to bypass much of the information they consider unimportant especially if the report is online. It is not the length of the disclosure of accounting policies that is itself problematic, but the fact that new or amended policies can be obscured in a long note running over several pages. A further problem is that accounting policy disclosure is often boilerplate, and provides little detail of how companies apply their general policies to particular transactions.

IFRS requires disclosure of ‘significant accounting policies’. In other words, it does not require disclosure of insignificant or immaterial accounting policies. Omissions in financial statements are material only if they could, individually or collectively, influence the economic decisions that users make. In many cases, they would not. Of far greater importance is the disclosure of the judgments made in selecting the

accounting policies, especially where a choice is available.

A reassessment of the whole model will take time and may entail changes to law and other requirements. For example, clutter could be removed by not requiring the disclosure of IFRS in issue but not yet effective. Currently, disclosure seems to involve listing each new standard in existence and each amendment to a standard, including separately all those included in the annual improvements project, regardless of whether there is any impact on the entity. The note is then a list without any apparent relevance.

The IASB has asked for comment on its forward agenda in which it acknowledges that stakeholders have said that disclosure requirements are too voluminous and not always focused in the right areas. However, the drive by the IASB has been to increase disclosure to address comparability between companies. Therefore, in the short to medium term, a reduction in the volume of accounting disclosures does not look feasible, although the IASB will consider this area for its post-2012 agenda.

Graham Holt is an examiner for ACCA, and associate dean and head of the accounting, finance and economics department at Manchester Metropolitan University Business School

50 Technical


Malaysia’s convergence with IFRS

On 19 November 2011, the Malaysian Accounting Standards Board (MASB) issued a new accounting framework, the Malaysian Financial Reporting Standards (MFRS).

The issue of MFRS brings together the exposure drafts of 75 IFRS-compliant Financial Reporting Standards (FRS) exposed in Malaysia in June 2011, and the MASB’s plan to converge with International Financial Reporting Standards (IFRS) in 2012 – a plan which has been made known to the Malaysian business community and accounting fraternity since 2008.

However, when the MASB announced the ‘birth’ of MFRS, many accountants and finance professionals wondered how MFRS was going to fit into the Malaysian financial reporting framework, already occupied by FRS and Private Entity Reporting Standards (PERS). Would MFRS replace FRS? Or would it be in addition to FRS, therefore creating a trio of MFRS, FRS and PERS in the Malaysian framework?

MFRS and where it standsIn essence, corporate Malaysia (except private entities) moves to MFRS this year. MFRS comprises standards issued by the International Accounting Standards Board (IASB) that are effective for annual periods beginning on or after 1 January 2012. It also comprises new and revised standards that will be effective for periods after 1 January 2012, such as those on financial instruments, consolidation, joint arrangements, fair value measurement and employee benefits. The adoption of MFRS is seen as a significant milestone for the Malaysian capital market as corporations will be able to affirm that their financial statements fully comply with IFRS.

While MFRS is applicable to all entities other than private entities for annual periods beginning on or after 1 January 2012, the exception is entities that are within the scope of MFRS 141, Agriculture and IC Interpretation 15, Agreements for Construction of Real Estate, including their parent, significant investor and venturer (known as transitioning entities). Transitioning entities are allowed to defer adoption of MFRS to annual periods beginning on or after 1 January 2013.

According to the MASB, the rationale to provide the transitional period for both the agriculture and real estate industries is in view of potential changes that may change current accounting treatments. The IASB is planning to issue a new standard on revenue recognition next year that will subsume IC 15 and is likely to amend IAS 41 (the equivalent of MFRS 141) requirements for bearer biological assets. Given this uncertainty, the MASB will allow the status quo until the IASB direction is clearer. On balance, the MASB believes that this arrangement will not affect its convergence objective as MFRS is fully IFRS-compliant and the transitional period is limited and based on the IASB’s own programme of standard changes.

The FRS frameworkFor FRS (which is likely to be adopted by the transitioning entities in 2012), the MASB has issued the following new or revised standards, which are effective on 1 January 2012 or later:

* FRS 9, Financial Instruments.

* FRS 10, Consolidated Financial Statements.

* FRS 11, Joint Arrangements.

* FRS 12, Disclosure of Interests in Other Entities.

* FRS 13, Fair Value Measurement.

* FRS 119, Employee Benefits.

* FRS 127, Separate Financial Statements.

* FRS 128, Investments in Associates and Joint Ventures.

* Four limited amendments.

* A new Interpretation. The key differences between FRS and

MFRS are:A In FRS, IC 15 will be withdrawn in line

with the decision concerning transitioning entities and FRS 201 will continue to be the extant standard for accounting for property development activities.

B In FRS, there is no equivalent standard to IAS 41.

C In FRS, there are two other local standards, FRS 204 2004, Accounting for Aquaculture, and IC Interpretation 201, Preliminary and Pre-operating Expenditure, in addition to FRS 201.

Private entitiesThere will basically be no change for private entities as PERS perseveres into 2012. Private entities shall comply with either PERS in its entirety or MFRS in its entirety for annual periods beginning on or after 1 January 2012, except for those entities under the scope of MFRS 141 and/or IC 15, which may alternatively apply FRS for annual periods beginning before 1 January 2013.

To date, there has been no explicit decision nor notification made on the much-anticipated FRS for SMEs (MASB ED 72).

Consolidating consolidationsIn May 2011, the IASB simultaneously published a new suite of five accounting standards that will affect and could significantly change the consolidation

Ramesh Ruben Louis clears up confusion surrounding the Malaysian Accounting Board’s new accounting framework, the Malaysian Financial Reporting Standards (MFRS)

51Technical

MY_T_IFRS.indd 51 13/04/2012 11:09

Key attributes/requirements

* An investor consolidates another entity when it has defacto (effective) control over it, even if it does not control a majority of the shares.

* The nature of involvement need not necessarily require an investment in the investee. An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

* Potential voting interests such as options and conversion features will be considered and, coupled with other interests, could result in consolidation of an investee even before those rights are exercisable.

* Guidance on consolidation for companies using special purpose entities, such as financial institutions and other entities dealing with securitisation structures.

* A company no longer has a free choice between a single-line depicting their net share of a joint venture entity (equity accounting) or inclusion of its share of each asset, liability, revenue and expense individually (proportionate consolidation).

* If the arrangement is a joint operation, a joint operator accounts for the assets, liabilities, revenues and expenses related to its interest in the joint operation in accordance with the IFRSs/MFRSs applicable to the particular assets, liabilities, revenues and expenses.

* If the arrangement is a joint venture, a joint venturer recognises its interest in the joint venture as an investment and accounts for that investment using the equity method. The proportionate consolidation is disallowed in such a joint arrangement.

* Most of the disclosure requirements on subsidiaries, joint ventures and associates in the former IASs/FRSs are retained in IFRS/MFRS 12.

* The additional disclosures are judgments and assumptions applied to determine the relationships and the risks of involvement, including risks of involvement in consolidated structured entities.

* New disclosure requirements for reporting entities with involvement in unconsolidated structured entities.

* Requires that when an entity prepares separate financial statements, investments in subsidiaries, associates, and jointly controlled entities are accounted for either at cost, or in accordance with IFRS/MFRS 9, Financial Instruments (now IAS 39/MFRS 139).

* Also deals with the recognition of dividends, certain group reorganisations and includes a number of disclosure requirements.

* Prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.

* Defines ‘significant influence’ and provides guidance on how the equity method of accounting is to be applied (including exemptions from applying the equity method in some cases). It also prescribes how investments in associates and joint ventures should be tested for impairment.

Standard

IFRS/MFRS 10

IFRS/MFRS 11

IFRS/MFRS 12

IAS 27/MFRS 127 (Revised)

IAS 28/MFRS 128 (Revised)

Key attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsKey attributes/requirementsStandardStandardStandardStandardStandardStandardStandardStandardStandardStandardStandard

52 Technical

MY_T_IFRS.indd 52 13/04/2012 11:09

evaluation and joint venture accounting for many companies, as follows:

* IFRS 10, Consolidated Financial Statements.

* IFRS 11, Joint Arrangements.

* IFRS 12, Disclosures of Interests in Other Entities.

* IAS 27(Revised), Separate Financial Statements.

* IAS 28(Revised), Investments in Associates and Joint Ventures.

In Malaysia, these standards will be effective for annual periods beginning 1 January 2013, and will carry the abbreviation MFRS instead of IFRS/IAS.

IFRS/MFRS 10 replaces the consolidation part of the former IAS 27/FRS 127. IAS 27/MFRS 127(Revised) therefore deals only with accounting for investments in subsidiaries, joint ventures and associates in the separate financial statements of an investor (ie retaining the part on separate financial statements in the former IAS 27/FRS 127). IFRS/MFRS 11 supersedes the former IAS 31/FRS 131 on accounting for joint arrangements. Disclosure requirements on subsidiaries, joint arrangements, associates and involvement in unconsolidated structured entities are now prescribed in IFRS/MFRS 12.

The key attributes of these new/revised standards are summarised in the table on the left.

Fair value measurementsThe IASB’s project on fair value measurement can be traced back to September 2005. A discussion

paper on fair value measurement was subsequently issued in November 2006, followed by the issue of an exposure draft in May 2009. It was re-exposed in June 2010, before being established as a fully fledged standard – IFRS 13, Fair Value Measurement – in May 2011. In Malaysia, this IFRS (MFRS 13) will be effective for annual periods beginning 1 January 2012.

The IASB’s objectives in publishing this standard on fair value measurement are to: I Define fair value. II Set out in a single IFRS a

framework for measuring fair value.

III Require disclosures about fair value measurement.

IFRS/MFRS 13 seeks to increase consistency and comparability in fair value measurements and related disclosures through a ‘fair value

hierarchy’ (see diagram above). The hierarchy categorises the inputs used in valuation techniques into three levels. The hierarchy gives the highest priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

ConclusionIt is apparent that 2012 and 2013 are set to be exciting and challenging years for accountants in Malaysia, with a new framework in place, a new comprehensive model for consolidation and the realisation of the much-awaited fair value pronouncement beckoning at their doors.

Ramesh Ruben Louis is a professional trainer and consultant in audit and assurance, risk management and corporate advisory

Level 1

Level 2

Level 3

* Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.

* A quoted market price in an active market provides the most reliable evidence of fair value and is used without adjustment to measure fair value whenever available, with limited exceptions.

* Inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

* Unobservable inputs.

* An entity develops unobservable inputs using the best information available in the circumstances, which might include the entity’s own data, taking into account all information about market participation assumptions that is reasonably available.

evaluation and joint venture accounting Level 1Level 1Level 1Level 1Level 1Level 1Level 1Level 1 **** Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities Quoted prices in active markets for identical assets or liabilities

53

MY_T_IFRS.indd 53 13/04/2012 11:09

Malaysia has hitched its wagon to the shared services and outsourcing (SSO) bullet train, delegates at a recent ACCA business forum in Penang heard.

‘The train has left the station and picked up speed. It’s moving from a coal locomotive to a shinkansen (Japanese bullet train),’ Tan Eu Gin, Malaysia shared service controller with Intel told the ACCA Accountants for Business Forum on 22 March.

Also addressing the forum, themed Finance Transformation: Expert Insights on Shared Services and Outsourcing, Lim Guan Eng, chief minister of Penang, said it was estimated that the SSO market in Malaysia will be worth US$2bn with 300,000 high-value jobs this year. According to the AT Kearney Global Services Location Index 2011, Malaysia ranks third in terms of attractiveness as a destination for outsourcing activities, behind only India and China.

While prospects are bright, challenges remain. One is to move Malaysia up the SSO value chain, despite its relatively small talent pool. With its population of 28.3 million as of mid-2011, Malaysia cannot compete on the same platform as India and China.

Ng Wan Peng, chief operating officer of Multimedia Development Corporation (MDeC), estimated that Bangalore’s business process outsourcing (BPO) sector generates US$80bn in revenue, comprising 26% of India’s total exports. ‘We’re about 2.5% of India’s population. We cannot generate that kind of revenue,’ she said. ‘The SSO space is huge. Call

SHARED SERVICES GATHER SPEED

centres are not the space we want to play in.’

‘The key point is with our talent, what are we going to focus on?’ asked Dr Ng Boon Beng FCCA, finance director of Oracle. ‘BPOs must become centres of excellence for companies where the knowledge concentrated must be increased.’

‘To become a premium service provider, our centres of excellence need to be in-depth centres rather than processing centres. If you have niched yourself, you have moved into a premium space,’ said Intel’s Tan.

Ooi Kok Seng, audit, HR and training partner at KPMG, said that investors are impressed with the lower cost structure in Penang. However, scarce talent means that it is necessary to ‘optimise the limited talent, perhaps in areas like management feedback and reporting. We can use more experienced people in Penang. We don’t have the volume but we have quality.’

‘We can try to optimise people and maximise economies of scale so costs drop,’ concurred Francis Wong, finance director of global accounting and financial services at AMD.

Continuous improvementWhile companies may have focused on costs at the start of the SSO process, they will seek ways to add value in future. ‘Cost reduction is the main driver,’ said Ooi. ‘How do you balance cost arbitrage with [the higher cost of] retaining quality talent?’

Wong noted that shared services centres (SSCs) have to drive improvements continuously year after year to justify higher salaries and keep challenging talent. ‘Talent has already moved up the value chain and they are not going to do lower [paid] jobs.’

After cost drivers, companies migrate to efficiency. ‘If you drive standardisation, you drive efficiency. That is a new level of value-add. As you go further into processing, what is the depth of knowledge that you attain? You have to master your process – Six Sigma and Lean – to make the process sustainable,’ said Tan.

Malaysia could also value-add by mastering ‘the challenge of IFRS convergence’, added Tan, since different countries have varying levels of convergence.

Service levels also need to be enhanced significantly to optimise

Ng Wan Peng elaborates on Malaysia’s potential as a SSO hub. Looking on from left are Tony Osude, Francis Wong, Tan Eu Gin, Ooi Kok Seng and Dr Ng Boon Beng

Tony Osude, ACCA’s head of global

relationships and services, shares his perspective on SSO

ACCA news54

MY_A_Penang.indd 54 16/04/2012 13:05

SHARED SERVICES GATHER SPEED

SSO. Dr Ng pointed out that each market serviced presents a different set of problems for SSCs. Differentiation and diversity in service is essential. ‘The problems in Malaysia are a different set from, say, Indonesia,’ remarked Oracle’s Dr Ng.

‘The SSC often ignores the local issues which are swept under the carpet. We assume the whole world works in a standard manner. We can’t impose a standard process on customers. We have to treat customers differently.’

Frustrations with the SSC can sometimes lead the local retained finance function to set up a structure similar to the SSC, or a shadow organisation. ‘There’s always this argument between the business partner and the SSC,’ agreed AMD’s Wong. ‘We need to be very clear about what sits within the retained function and within the SSC.’

He recommended that the retained finance function should handle local issues, since it possesses the expertise on statutory and regulatory matters unique to each jurisdiction. ‘While the local statutory sits with retained finance, we can handle US GAAP (generally accepted accounting principles). If there are issues with local government, local finance can go in,’ he suggested. He gave the example of a government audit in China that was handled by the local finance

function with the support of SSC team members who were specially flown in. ‘Local knowledge of authorities, customs, regulations and customer insights can never be outsourced,’ agreed Dr Ng.

KPMG’s Ooi also stressed that SSCs must maintain a certain level of confidentiality to safeguard intellectual property rights and security. ‘We have to see whether the outsourcer has a good work culture and ethics to protect client confidentiality.’

Tan cautioned ‘the need to be sensitive to transition management…to earn the trust of somebody 10,000 miles away’. Technologies such as instant messaging and webcams are useful to obtain instant face time and speed up resolution.

Linked to this is case ownership. ‘We have to be careful in managing responsibility and ownership of a case. There must be resolution and accountability in seeing through a case to its conclusion. Don’t pass the buck around,’ said Wong.

Communication vitalFrequent and clear communication is also vital to mitigate frustrations, said the panellists. ‘A lot of discussion needs to happen,’ said Wong. ‘In service level agreements communication becomes very critical. The SSC also needs an escalation team because a lot of times issues are swept

under the carpet. How fast can these go into escalation?’

MDeC’s Ng noted that companies must be very clear on what benefits they want to derive from a business decision to set up shared services. ‘You cannot have the same comfort level that you expect from a retained function, but you must have the faith and trust in the system that it can deliver the same or better services,’ she said.

Despite the challenges, SSO is growing from strength to strength. Jennifer Lopez, country head of ACCA Malaysia, said: ‘One view is that the SSO sector will be second only to the large accounting firms in volume and quality of career opportunities offered to accounting students and members.

‘Across the end-to-end finance model, we foresee new finance roles will evolve, new career paths will emerge and new skills and capabilities will be required. Hence, it is clear that there are great future career prospects for ACCA members and students within these environments.’

The current number of people employed in finance and accounting roles by BPO alone is estimated at 200,000 globally and growing at more than 10% annually, she added.

Candidates who wish to succeed in the SSO industry will need a good command of English, advised Oracle’s Dr Ng. Those in the industry should also possess a global perspective and be able to cut across all jurisdictions and markets if the SSCs they work for are to move up the value chain.

He also urged young accountants to acquire technological expertise in order to handle matters like higher-value data analytics and statutory submissions remotely.

Accountants also need to move out of their comfort zones, Wong advised. ‘Don’t only stick to your finance roles; explore other functions. When you come back, you’ll be able to talk logistics, operations and planning. Experience makes your life easier.’

Nazatul Izma Abdullah, journalist

Delegates at the event, held at G Hotel

55

MY_A_Penang.indd 55 16/04/2012 13:06

The world is undergoing a period of profound transformation driven by global political, economic and technological shifts. Taken together, these forces suggest that the role and expectations of the accountant of tomorrow and the industry they inhabit could be radically different from the profession today. So how can the profession prepare for an uncertain future when we all feel there is already a full agenda dealing with today’s challenges?

Recognising the need to help accountants explore these long-term drivers of change, ACCA has started the Accountancy Futures Academy. Its mission is to provide a radar to highlight the trends, driving forces and ideas that could shape the future global business and accountancy landscape.

The first output from the academy is a consultation with members of ACCA’s global forums. The objective is to identify the drivers of change that accountants should be thinking about to prepare them for future challenges. This article looks at some of the emerging findings from the study being coordinated by Fast Future Research.

The changing economic landscape is seen as central to any exploration of the future of business. We are in the middle of a period of deep economic uncertainty. For accountants, this puts the spotlight on our risk and resilience plans – how are we factoring in the potential collapse of key parts of the economic infrastructure in individual markets or globally?

Increasing influenceWhile mature economies focus on surviving and navigating the current turbulence, emerging economies are growing, particularly the BRIC nations. It is clear that the BRICs will have an increasingly influential say in how

global economic systems are shaped and governed. These countries are presenting global accountancy firms with opportunities, in terms of markets to expand into, but also challenges as a potential source of future rivals. Could we see multinationals transferring their accounting business to firms from the BRIC economies?

Political power can be expected to follow financial power, with both China and India having more of a say on the evolution of the key institutions of global governance. This could give both countries the platform to set the rules and agenda for the new so-called Asian century. This could have far-reaching implications for how the global accountancy profession evolves in future, especially with regards to the definition and adoption of uniform global accounting standards. Could these standards come to reflect Eastern rather than Western practices?

Population shiftsDemographic shifts are reshaping the make-up of the global population. By 2050, the Asia Pacific region will have grown by more than the populations of Europe and North America combined, with Europe itself expected to shrink by around the size of Germany. Global life expectancy is projected to continue increasing and enforced retirement ages abandoned. This raises questions about how we effectively manage and provide career opportunities for multiple generations in the workforce.

The business of business is also undergoing fundamental change – with new business models offering the potential to transform our notions of risk and value. Firms are increasingly opting to switch from ownership of fixed assets to renting the services provided by those assets – cloud computing is one such example. The

risks of new product development and new venture creation are also being transformed by crowd-sourcing models such as Kickstarter.com, which enable entrepreneurs and innovators to raise the necessary financial commitments from the customer before embarking on the project. Sales approaches such as aggregated buying and the auction model are increasingly being used by businesses to sell their offerings. How will accounting practices and risk assessments need to change to take account of a rapidly changing set of business models with often unpredictable revenue streams?

The financial crisis has highlighted the need for businesses to construct ‘living wills’ to facilitate an orderly unravelling of their affairs in case of insolvency. Accountants can play a key role here, but how deeply will the finance function need to be embedded

Tomorrow’s worldACCA’s Accountancy Futures Academy is exploring the future role of accountants. It will be radically different, say academy chairman Ng Boon Yew and futurist Rohit Talwar

Chairs of ACCA’s 10 global forums met for a Global Forums Symposium in March in London to discuss the issues that will be confronting the accountancy profession over the coming months and years.

A presentation based on the research described in this article provided a basis for lively discussions on a wide range of topics including global economic uncertainty, audit, complexity, regulation, adding value, principles, sustainability, investors and reporting, the public sector and fraud.

The forums aim to further thinking on current and future issues in a number of specific areas, as well look at the challenges and opportunities facing the accountancy profession generally.

*GOING IN FOR THE SKILL *FORUM SYMPOSIUM

56 ACCA global forums

MY_INT_A_future.indd 56 16/04/2012 15:03

Accountants must learn to plan for and think in terms of multiple possible scenarios. An emerging competence is developing the agility and processes to cope with ever-shorter business cycles. Accountants also need to become adept at navigating and tackling operational and regulatory complexity and the rising number of non-financial indices used to measure value. The need to play a bigger role in business decision-making and the globalised nature of work mean accountants seeking international opportunities will have to expand their strategic, language and cultural skillsets. The backlash from the financial crisis, combined with greater moves towards environmental sustainability, will also result in growing regulatory requirements for accountants to act as public interest watchdogs.

FOR MORE ON THE ACCOUNTANCY FUTURES ACADEMY GO TO

www.accaglobal.com/globalforums

FOR MORE ON THE ACCOUNTANCY FUTURES ACADEMY GO TO

*GOING IN FOR THE SKILL

in the transactions, products and pricing models of the organisation to appreciate the scale and detail of what needs to be unravelled?

The growing complexity of business and the need for integration are placing greater demands on information technology. IT has revolutionised the

workplace – digitising workflows and assets, and creating new opportunities with people generating real-world fortunes from buying and selling virtual assets in online environments such as Second Life. Advances in artificial intelligence could lead to further automation of accounting functions.

Further down the road, technological advances could mean we download core accounting data directly into our brains. The core question is whether the roadmap for accounting systems development will be flexible enough to cope with a range of possible business scenarios.

Taken collectively, all these drivers suggest we are now entering a period of fundamental change for the global economy, for the general world of business and, as a result, for the accountancy profession.

Ng Boon Yew FCCA is chairman of ACCA’s Accountancy Futures Academy and executive chairman of Raffles Campus. Rohit Talwar is a global futurist and founder and CEO of Fast Future Research.

57

MY_INT_A_future.indd 57 16/04/2012 15:03

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TO APPLY FOR ANY OF THE POSITIONS BELOW PLEASE VISIT WWW.ACCACAREERS.COM

ACCA Careers gives me the latest and most varied range of job opportunities from all the major organisations and recruitment firms, along with great tips and advice to help me push my career forward.

Ian Chadaway, Burgis & Bullock

Team lead, aCCOUnTanT

Ensure the quality and accurate completion of General Accounting processes are delivered by General Accounting team within the agreed key performance indicators (KPIs).

malaysia | ref: aCTl

Senior ASSociAte

Plan and perform research & analysis to support/lead project & practice development work, presentations, and proposal development (for Assistant Managers).

mAlAySiA | ref: AdviSory - A/SA/Am/m

Audit

Requirements:• A recognised degree in Accounting or equivalent (e.g. Professional Accountancy qualification)• Involvement in extra-curricular activities in school/university• A strong team player with good interpersonal, communication and writing skills

KuAlA lumpur | ref: A001–Hr

Tax: Financial ServiceS

You will be involved in varied and challenging consulting assignments covering• tax restructuring and reorganisations• international tax & cross-border transactions• financing structures• tax planning reviews & efficiency schemes

malaySia | reF: pwc9

Advisory

A recognised Degree in Finance, Accounting or any major business discipline.Knowledge in internal auditing processes, governance frameworks or risk management willbe advantageous.

KuAlA lumpur | ref: Ad001–Hr

ACCA LeCturer

Teach professional financial / accounting certificated courses.• Excellent presentation & communication skills• Proven ability to motivate and engage others• Friendly, student-centered and supportive

Beijing | ref: ACCAKAPMY

“ACCA Careers gives me the latest and most varied range of job opportunities from all the major organisations and recruitment firms, along with great tips and advice to help me push my career forward.”

Ian Chadaway, Burgis & Bullock

OVER 22,000 ACCA MEMBERS AND STuDENTS HAVE REgISTERED THEIR CVS ON ACCA CAREERSEveryday on ACCA Careers on average we have....l 150 new candidates registerl 11,352 page viewsl 44 new jobs postedl 253 job applications

Employers we are already working with include Shell, PWC, Deloitte, KPMG and BBC.

Financial controller

To provide full financial control and management services to the management and programme teams within Suas and thereby support the delivery and expansion of the organisation’s educational mission.

Dublin | reF: SuaS001

RepoRting ManageR

Monitise, the mobile money experts, have created one of the most extensive and successful mobile banking and payments services in the world; a market capitalization of circa £170m and aggressive plans for further growth.

London | Ref: Mon001

To advertise with ACCA Careers there are 2 options, using our online self-service you can post a job right now at accacareers.com or you can contact our dedicated account management team on +44 (0)20 7902 1210

ABMYCAREERS.indd 3 17/04/2012 11:47

Learning opportunities have been brought together within each CPD subject heading

All professionals recognise the importance of developing their skills and keeping abreast of developments. CPD helps you not only to maintain competence but also demonstrate to employers your ability to progress and take on new responsibilities. ACCA wants members to maintain the highest professional standards because their skills, judgment and integrity can add value to organisations, economies and society at large.

When ACCA made CPD mandatory in 2005 there were many misconceptions, in particular that it meant attending face-to-face courses. This has changed as members have gained CPD through e-learning, acting as workplace mentors or learning at work – undertaking tasks for the first time, consulting an expert about a workplace or client issue, etc.

There is still a place for attending seminars and conferences and reading articles, but it is now widely recognised that individuals are looking for greater variety and blended learning solutions. In an age when information is immediately accessible, everyone wants access to learning at a time and place that is convenient for them.

The revamped CPD section of the ACCA website at www.accaglobal.com/cpd offers one-stop access to articles, e-learning, podcasts, online seminars, research and qualifications from partner organisations, and contains over 160 e-learning modules. You will find details of face-to-face courses on your local ACCA office site. Learning opportunities have been put under subject headings to make it easy to view the range of information available. You will also find details of how to meet your CPD requirements.

We hope the new resource will meet the demand for more accessible CPD. This is just the first step in improving

members’ experience of the website when looking for CPD and further improvements will appear this year.

The demand for e-learning has increased as professionals have become time-poor but also because the quality of e-learning has improved.

ACCA’s research has confirmed there is no decrease in quality with technology-enhanced learning and assessment compared with physical, classroom and paper-based learning and assessment.

Interviewees for the research included Richard Pollard, PwC’s global development leader, who said: ‘On an average day there might be facts I need to know and skills or techniques of which I need a reminder. I want that now. I don’t want it three months ago when I was at a training centre, and I can’t remember what I was learning.

I certainly don’t want it in six months’ time when I’ve been booked to go on a classroom session.’

Online learning and assessment technologies offer sophisticated ways to interact with learning content. You can fast-forward to more demanding modules, and pinpoint and address areas of weakness much more quickly.

Remember, learning will be considered verifiable if it is:

*relevant to your career

*you can demonstrate how you have applied it

*you can prove it took place – eg copies of course materials, notes from learning, contact details of a third party who can substantiate activity completion, a certificate of course/assessment completion.

For more information, go to www.accaglobal.com/cpd

Website revamp showcases CPDLooking for skills development opportunities on the ACCA website has been made even easier, as Ros Leah, ACCA’s head of professional development, explains

60 ACCA

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[Divining the business landscape of the future is a tricky art, but ACCA’s global forums can help, says president Dean Westcott

Landscape painting

Near the back of this edition you will find an article from ACCA’s new Accountancy Futures Academy, which looks at what will shape the professional landscape of the future and what we need to do to ensure we and our businesses are prepared.

It is critical that an organisation like ACCA has a means of bringing together expert opinion to provide a long-range forecast of the business climate, and the academy, along with the other global forums, has a vital role to play in highlighting the key trends along with the driving forces and ideas that will shape our profession.

We can make some educated guesses about the future. We know that there is a shift in economic influence from west to east and from north to south. Technological advances could result in core accounting functions being automated, meaning that accountants will need to be well placed to offer more analysis and judgment on the information which is produced.

The first symposium for all global forum chairs, which took place in London recently, addressed the pressing challenges and opportunities facing us. Forum chairs said that the profession needs to restore public trust and confidence, as well as avoid being so overwhelmed by the need for regulatory compliance that it loses the ability to contribute to business performance.

These challenges show the way to opportunities. In the corporate sector, for example, there is an opportunity to redefine the role of the finance professional, with accountants having the potential to take a lead role in areas such as risk management and corporate governance.

By drawing on ACCA’s longstanding core values, the global forums will make major contributions to a number of debates and will not only reflect on but influence policy and remind the public, businesses and government of the enduring value that accounting professionals bring to the table.

Articulating this value is not easy when the profession is under stress. It will mean challenging the forces which are pushing accountants towards over-emphasis on compliance. But I am sure that the forums will help us meet this challenge and will support us in setting out how much public value we bring to the table.

Dean Westcott, ACCA president and interim CFO, West Essex Clinical Commissioning Group, UK

61ACCA

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30 TAR STUDENTS JOIN PWC-ACCA PROGRAMME

More than 30 students from TAR College were handpicked from 80 applicants to participate in the PwC-ACCA STAR training programme launched on 8 March. The students, who are currently studying the Advanced Diploma in Financial Accounting, will be trained in making the best first impressions, resume writing, interview techniques, presentations skills and even dining etiquette. The training runs until September.

ACCA’s long-standing tradition of hosting members’ Appreciation Night receptions began this year with the gathering of more than 50 members, affiliates, students and employers at Kota Bahru and Kuala Terengganu on 6 and 7 March respectively.

The reception at Kota Bahru, Kelantan, was hosted by Dato’ Khalid Ahmad, a member of the ACCA Council, in his private residence in Pantai Senok. Here, guests acknowledged Wee Chin Siah during the dinner, who has just achieved FCCA member status.

Meanwhile at the Kuala Terengganu reception, ACCA welcomed Yeo Chiou Yee as a new member. The jovial evening was graced by Yeo Chin Meng, chairman of the Member Network – Kuala Terengganu and the presidents of the Malay, Chinese and Indian chambers of commerce.

Yeo Chin Meng, chairman of the Member Network –Kuala Terengganu, addresses the crowd at the Kuala Terengganu member reception

APPRECIATION NIGHT RECEPTIONS OF 2012 KICK OFF IN TWO LOCATIONS

ACCA Malaysia will continue its series of members’ Appreciation Nights throughout the year; see dates right.

Further details can be obtained from www.accaevents.com.my. Online registration is required

Date Location Date Location 7 August, Tuesday Miri 5 October, Friday Melaka9 August, Thursday Labuan 8 October, Monday Tawau7 September, Friday Ipoh 10 October, Wednesday Sandakan20 September, Thursday Bintulu 19 October, Friday Johor Bahru21 September, Friday Sibu 2 November, Friday Penang28 September, Friday Kuantan 8 November, Thursday Kuching

ACCA AND GRANT THORNTON LAUNCH NEW REPORT ACCA and SJ Grant Thornton Malaysia launched a new report, Putting Investors at the Heart of the Financial System: Malaysian Perspectives, at a ceremony on 27 March 2012 at the Sheraton Imperial Kuala Lumpur Hotel.

This report is based on the insights gained from a series of roundtable discussions facilitated by ACCA and SJ Grant Thornton in the last quarter of 2011, involving investors and investor representatives from a number of markets. It revealed their views on existing global financial and accounting standards, the current and future challenges, their aspirations for reform, and the potential barriers they foresee in addressing their concerns.

Jennifer Lopez, country head of ACCA Malaysia, presented the findings to about 100 finance and business professionals. The launch was followed by a forum moderated by Dato’ NK Jasani, country managing partner of SJ Grant Thornton. The panellists were Errol Oh, executive editor of The Star; Paul W Chan, founding board member and deputy president of the Malaysian Alliance of Corporate Directors; and Chong Chee Fern, general manager of the corporate division of the Minority Shareholders Watchdog Group.

Jennifer Lopez, country head of ACCA Malaysia and Dato’ NK Jasani, country managing partner of SJ Grant Thornton, launch the report at the forum

ACCA news62

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ASTRO WELCOMED AS AN APPROVED EMPLOYERMeasat Broadcast Network Systems (Astro) has joined the distinguished list of ACCA Approved Employers, a recognition recently marked with a special ceremony.

Astro, which was welcomed as an ACCA Approved Employer – professional development, currently employs around 10 ACCA members.

This recognition was given for Astro’s dedication in providing valuable support to its employees in the course of obtaining the ACCA Qualification, and providing relevant learning and development opportunities for ACCA trainees and members.

Jennifer Lopez, country head of ACCA Malaysia, presents the Approved Employer certificate to Aziz Mohd Ibrahim, senior vice president of talent management, Astro (right) and Ahmad Fuaad Kenali, CFO and senior vice president for commercial services, Astro

MEMORANDUM SIGNED WITH KDU COLLEGE TO ALLOW DUAL AWARDACCA and KDU College have signed a memorandum of understanding to allow students to simultaneously earn the ACCA Qualification and KDU’s Bachelor of Accounting.

Currently, KDU students must earn their undergraduate degrees and then undertake additional studies in order to earn the ACCA Qualification.

Academic content of the new programme and the curriculum will be developed in cooperation with ACCA.

Industry professionals and senior staff from key industry service providers and accountancy firms will also be consulted on the content of the new programme, which is likely to be launched in early 2013.

From left: Zaiton Mohd Hassan, vice president, ACCA Malaysia Advisory Committee, Jennifer Lopez, country head, ACCA Malaysia; Patricia Chua, special projects director, KDU; and Dr Tan Hui Leng, deputy vice chancellor (academics), KDU

ACCA WINS BEST BOOTH AT BORNEO POST FAIRACCA Malaysia was awarded the Best Booth Award for the second consecutive year at the Borneo Post International Education Fair (BPIEF).

The two-day fair, held on 3 and 4 March, attracted more than 100 exhibitors and was visited by an enthusiastic crowd of students. The BPIEF is touted as Borneo’s premier home-grown education fair and is targeted at students who have completed their higher secondary school education.

FIRST CFO BREAKFAST TALK HELD ACCA Malaysia held its first CFO Breakfast Talk on 14 March at the Hilton Kuala Lumpur. PwC partner Soo Hoo Khoon Yean presented the findings of PwC’s latest survey report, The New

Digital Tipping Point. More than 30 CFOs, finance directors and finance controllers from various industry sectors attended, later debating the issues raised by the report.

PwC’s Soo Hoo Khoon Yean

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ACCA

At a recent ACCA forum in Penang (see page 54), one of the panellists likened the accelerating growth of shared services and outsourcing (SSO) to the shinkansen, the iconic Japanese bullet train. The panellists and participants at the ACCA Accountants for Business Forum on Finance Transformation: Expert Insights on Shared Services and Outsourcing, were left in no doubt there is no turning back from the SSO phenomenon.

In the last 10 years, finance leaders have increasingly turned to SSO as a primary strategy for change and finance transformation. In the US, more than 70% of Fortune 500 companies now use shared services or outsourcing models for their finance and accounting operations, according to Everest Group research from 2011. The prevalent use of shared services and outsourcing shows that CFOs are prioritising the re-engineering and transformation of finance activities. Indeed, the true prize of successful finance transformation is to unlock value, improve shareholders’ return and create competitive advantage.

Malaysia is one of the countries which has hitched a ride on the SSO bullet train. According to the AT Kearney Global Services Location Index 2011, Malaysia is third in terms of attractiveness as a destination for outsourcing activities, behind only India and China. Many multinational corporations and global banks have set up impressive shared services centres (SSCs) in Malaysia’s version of Silicon Valley, Cyberjaya.

Addressing the forum, chief minister of Penang, Lim Guan Eng, said it was estimated that the SSO market in Malaysia will be worth US$2bn (RM6.1bn) with 300,000 high-value jobs this year. However, while the prospects are bright for Malaysia to consolidate its position in the SSO market, challenges remain. One of the most pressing is to move Malaysia up the SSO value chain. With a population of 28 million, Malaysia cannot begin to compete on the same platform as India and China.

However, Malaysia does have certain advantages, such as an educated and multilingual workforce and a steady stream of accountancy graduates, especially ACCA-qualified finance professionals. Panellists at the forum agreed that if local SSCs want to move up the value chain, their people must have a global perspective and be able to cut across all jurisdictions and markets. They also need to move out of their comfort zones and explore other functions to gain experience in logistics, operations, planning and so on.

Young accountants in shared services operations need to acquire the technological expertise to handle matters like higher-value analytics and statutory submissions remotely. In addition, Malaysia could also look into mastering the challenge of IFRS convergence to differentiate itself.

Indeed, the SSO sector offers huge benefits, not only for the economy, but for young accountants. There is a view that the SSO sector will be second only to the large accountancy firms in volume and quality of career opportunities. As new finance models evolve, so too will the career opportunities for ACCA students and members. New career paths will emerge and new skills and capabilities will be required. Can we, as accountancy professionals, adapt and capitalise on these massive changes underway?

Devanesan Evanson is president of the ACCA Malaysia Advisory Committee

[ The shared services and outsourcing sector offers many opportunities for accountants as well as the economy, says Devanesan Evanson

All aboard the SSO train

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As ACCA’s governing body, Council plays a pivotal role in ACCA affairs.

* It ensures that ACCA operates in the public interest and delivers the objectives stated in its Royal Charter.

* Council sets ACCA’s overall direction through regular approval of strategy.

* It acts as a link between members and the professional body, and leads the organisation in the interests of both.

* It is accountable both to members and the public interest.

* It acts for all members and future members (today’s students).

* It provides leadership of ACCA and stewardship of its resources.

Council develops policy for ACCA as a whole and Council members are volunteer custodians acting for the well-being of the whole organisation. Whatever their geographical or sectoral bases, Council members do not represent particular areas or functions

and are elected by the membership as a whole.

ACCA members of all ages and backgrounds are encouraged to stand for election to Council. Long-term or technical experience is valuable, but so is the proven ability to participate actively in strategic decision-making. Council experience as such is not necessary. However, an understanding of good governance is essential, and personal and professional integrity must be of the highest order.

Specifically, ACCA expects members to bring the following skills and attributes to Council:

*an ability to take a strategic and analytical approach to issues and to see the big picture;

*an understanding of the business and the marketplace;

*communication and networking skills;

*an ability to interact with peers and respect the views of others;

*decision-making abilities;

*an ability to act as ambassadors in

many different environments;

*planning and time management; and

*a willingness to learn and develop.Nominations are now invited for

election to Council at the 2012 AGM. Candidates must be nominated by at least 10 other members in good standing. Candidates should supply a head and shoulders photo and an election statement of up to 180 words, which should not include references to email addresses or websites. Candidates are also required to sign declarations of their willingness to comply with, and be bound by, the code of practice for Council members.

Further information on the Council election process, including pro forma of nomination forms, may be obtained by writing to the Secretary at 29 Lincoln’s Inn Fields, London WC2A 3EE, by faxing +44 (0)20 7059 5561, or by emailing [email protected] (please put ‘Council Elections’ in the subject box).

Elections to Council

ACCA 65

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65 CouncilElection time is coming

64 Devanesan EvansonThe ACCA Malaysia Advisory Committee president on shared services and outsourcing

62 NewsAppreciation nights a hit

61 Dean WestcottGlobal forums have a vital role to play, says the ACCA president

60 CPDThe ACCA website now has a new, improved, CPD section

56 Global forumsACCA’s Accountancy Futures Academy

54 OutsourcingPenang forum

Inside ACCA

Council’s first scheduled meeting of 2012 took place on Saturday 10 March. The guest presenter was Katrina Wingfield, chairman of the ACCA Regulatory Board, who presented its annual report for 2011.

The Regulatory Board was established after the AGM in May 2008 and brings together all of ACCA’s arrangements for regulation and discipline in a single entity. It stands at arm’s length from Council and the majority of its members are lay individuals.

The report of the Board for 2011 covered the third full calendar year of its operation. It focused on a successful regulatory event organised in October 2011, at which Sir Ian Kennedy was guest speaker, and the establishment by the Board of an Overview of Regulatory Procedures Working Party. Council was pleased to note that the report overall underscored the Board’s commitment to continuous improvement in regulation and was reassured that, going forward, the Board would continue to provide proactive oversight of ACCA’s disciplinary and regulatory processes.

A number of other issues were considered in Council’s formal sessions:

* Council met in discussion groups to debate the competitive landscape in the global profession and ACCA’s response to it.

* Council considered the regular report of chief executive Helen Brand. This covered ACCA’s performance, as well as a review of its strategic development and developments in the wider profession.

* On a recommendation from the Resource Oversight Committee, Council approved the

proposed budget for the organisation for 2012–13. Following a recommendation from a group of standing committee chairmen, Council also approved achievement measure targets put in place to track ACCA’s strategic performance in 2012–13.

* At the request of the Regulatory Board, Council considered its policy with regard to ACCA students who hold AAT practising certificates. Council agreed to maintain its current policy to recognise only professional-level, IFAC member body-issued practising certificates and not to introduce any dispensation for AAT practising certificate holders.

* Under the terms of membership regulation 3(f), Council agreed to invite into ACCA membership four senior accountants from Indonesia – Rosita Uli Sinaga, Ahmadi Hadibroto, Irhoan Tanudiredja and Langgeng Subur.

* Council was pleased to approve the signing of a renewed Mutual Recognition Agreement with the Malaysian Institute of Certified Public Accountants.

* Council confirmed Anthony Harbinson as its preferred nominee for vice president 2012–13. (The formal elections for ACCA’s officers will take place at the annual Council meeting immediately following the AGM on 20 September 2012.)

Council’s next meeting will be in June 2012, when it will meet in Nairobi, Kenya as part of the biennial series of meetings held in ACCA’s key international markets.

Council highlights

TRAINEE CHANGES The trainee development matrix (TDM) for ACCA students has been overhauled.

The tool, used by trainees to plan and record their achievement of Practical Experience Requirements (PER), has been renamed My Experience. It will remain accessible via myACCA, and a reminder pop-up will prompt trainees to update their own experience status regularly. They no longer have to provide an annual PER return.

TDM exemptions have been renamed Performance Objectives Exemptions, and the former HKICPA TDM exemption for trainees in Hong Kong is now the HKICPA Performance Objective Exemption. Trainees are still required to use My Experience to claim the exemption and record the number of months’ work experience gained. It remains important that employers support trainees to achieve their PER, as well as their exams and ethics module, by arranging a workplace mentor. ACCA-approved employers who have approved exemptions for their trainees must remind them they are still required to use My Experience to track their progress.

Acting as a workplace mentor can be included towards Continuing Professional Development.More at www.accaglobal.com/en/student/experience.html

Nairobi: next meeting

66 ACCA news

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There is ‘no turning back’ from finance shared services and outsourcing (SSO) as a future delivery model for the finance function. Transforming the finance function is a key priority for many finance leaders as they seek to deliver reduced finance costs, drive finance process efficiency and enhance the effectiveness of the finance function as a true business partner to the organisation.

SummiT highlighTS

• unique insights and perspectives on finance transformation, the challenges, issues and opportunities in the transformation space

• Showcase of best-practice approaches by leading global organisations• A look at the finance transformation journey and evolution of the shared service model• Facilitated discussions and debate around specific SSO issues.

Visit www.accaglobal.com/en/asia-finance.html for full programme details.Register online at www.accaevents.com.my/key-events

Asia finance shared services and outsourcing summit 2012

ContACt GrACe Lee At:

ACCA malaysia27th Floor Sunway Tower 86 Jalan Ampang 50450 Kuala lumpur +60 (0)3 2182 3607 [email protected]

15 MAy 2012 • 9AM – 5pM • one WorLd HoteL, petALinG JAyA

ACCA member (Rm)

Student/Affiliate/AE(Rm)

Non-ACCA member (Rm)

international (Rm)

Normal 850 950 1,050 1,050 (uS$350)

Early bird (ending 31 march 2012) 750 800 900 900 (uS$300)

SummiT FEE

official media partner

ACCountAnts for Business: sourCinG exCeLLenCe in finAnCe

Cpd pOiNTS: 8

CPDget verifiable cpd units by reading technical articles

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the magazine for business and finance professionals accounting and business malaysia 05/2012

shAreD serviCes

penang forum looks ahead

new frAmework malaysian financial reporting standards

ACCA’s globAl forums Vital roleCPD annual reports

A CAll to CAre accountant turned Volunteer Wong koei onn on helping others

sme suPPort better times ahead?

Deloitte olympics’ adViserPrACtiCe auditor rotation

MY_cover.indd 1 17/04/2012 12:05

AB MY (Malaysia edition) – May 2012

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Transcript of AB MY (Malaysia edition) – May 2012