BEYOND BITCOIN

Issue 5 / Volume 12 / May 2016

Blockchain technology has the potential to

revolutionize the worlds of banking and financial services, and even the

work of auditors

HK$70.00

Plus:SuccessGlorious Group CEO Mark Szeto

Start-up CFOsThe life of risk-taking finance chiefs

LifeCPA hikers

President’smessage

aplus

May 2016 1

Dear members,

Earlier this month, the Council had a fruitful annual visit to Beijing and Shanghai to meet with the Min-istry of Finance, China Securities Regulatory Commission, Chinese Institute of CPAs and other Main-land authorities and counterparts. Among other things, we exchanged views on global and local develop-ments relating to the profession and cooperation opportunities arising from initiatives such as the 13th Five-Year Plan, Belt and Road and free trade zones.

During two cocktail receptions held alongside the visit, we further connected with our stakeholders and I was also able to enjoy closely interacting with members working there to understand their needs – a valuable opportunity indeed.

Back in Hong Kong, I met with our small- and medium-sized practi-tioners at a forum to discuss topical issues relevant to them, including IES 8 Professional Competence for Engagement Partners Responsible for Audits of Financial Statements (Revised), and the new and revised auditor reporting standards.

We launched our first financial controllership pilot programme this month after spending substantial time and resources to ensure mem-bers truly benefit from each module. As the function of finance grows

beyond just dealing with numbers to cover more business roles, coupled with the challenge to manage big data, the demand for skilled finan-cial controllers has never been more apparent. Aimed at aspiring or recently appointed financial con-trollers, the programme is unique in that it is taught by seasoned CPAs in business, and enables partici-pants to acquire valuable practical knowledge and skills.

In recognizing the programme’s standing, the Chartered Institute of Management Accountants will offer an additional paper exemption on risk management to members who have successfully completed the programme.

Assisting members’ career devel-opment has always been at the heart of what we do and so, to add to our other training programmes, we have just introduced a new soft skills series. As many world-renowned business leaders and organizations have pointed out, technical (hard) skills are essential in your career, but to move up the ranks, soft skills are paramount yet often ignored. We have devised a range of topics specifically tailored for CPAs, from influencing and interpersonal skills to leadership and creative thinking. Don’t miss the opportunity to enrol in those that best fit your

development needs. Last month, connecting with

government and public sector leadership, we held a member forum inviting Chief Secretary for Administration Carrie Lam to talk about the consultation on retirement protection, in which she highlighted the urgent challenge of Hong Kong’s ageing demographics. This was the latest seminar under the current affairs series, which the Institute started last year, designed to raise members’ awareness on important public issues, and through which to allow members to share their views based on their professional perspective.

Another event to look forward to takes place in June. The Commis-sioner of Insurance John Leung will talk to members about the changes expected under the new regulatory regime and the transitional arrange-ments upon the establishment of the Independent Insurance Authority. Not only will this be a timely update for members working in the sector, but also a reference for the profes-sion to appreciate the differences and similarities as it undergoes audit regulatory reform.

As always, I look forward to your views on the various services the Institute can commit to in order to help you grow in the profession.

“ Technical (hard) skills are essential in your career, but to move up the ranks, soft skills are paramount yet often ignored.”

Ivy CheungPresident

ContentsIssue 5 / Volume 12 / May 2016

01NEWS

01 President’s message

04 Institute news

06 Accounting news

10FEATURES

10 Leading the start-up way These finance chiefs don't mind the element of uncertainty and career risk of working for start-ups

17 Thought leadership: Witman Hung The Principal Liaison Officer for Hong Kong, Shenzen Qianhai Authority on why Qianhai is a great opportunity for CPAs

18 The blockchains that bind us Exploring the demand for blockchain as a secure storage and distribution solution, and the impact it will have on the banking and finance industries

25 How to… Ricci Leong on successfully implementing bring-your-own-device plans at work

26 Success ingredient: Mark Szeto The CEO at fireworks specialist Glorious Group on giving the wow-factor to large-scale events around the world

32 Into the wild Institute members experience Hong Kong from higher ground

39SOURCE

39 Exercise lien over documents or records of clients with caution Where a legal right of lien exists, the Institute recognizes the exercise of that lien in appropriate circumstances

40 Section 221 requests – How should auditors respond? Practical considerations for auditors in dealing with liquidators’ s221 requests for information and documents

42 Technical update Implementing HKFRS 9's new impairment model

46 TechWatch 162

10Leading the start-up wayThe critical focuses and unusual duties of start-up CFOs

About our nameA PLUS stands for excellence, a reference to our top-notch accountant members who are success ingredients in business and in society. It is also the quality that we strive for in this magazine — going an extra mile to reach beyond Grade A.

Acting Editor Gerry HoEmail: gerry.ho@mandl.asia

Copy Editor Jemelyn Yadao

Contributors Tigger Chaturabul, James Kelly

Editorial Assistant Queenie Lee

Production Manager Jasmine Hu

Designer Trevor Cheng

Editorial Office 2/F, Wang Kee Building, 252 Hennessy Road, Wanchai, Hong Kong

ADVERTISING ENQUIRIESAdvertising Director Derek TsangEmail: derek.tsang@mandl.asiaTel: (852) 2656-2676

A PLUS is the official magazine of the Hong Kong Institute of Certified Public Accountants. The Institute retains copyright in all material published in the magazine. No part of this magazine may be reproduced without the permission of the Institute. The views expressed in the magazine are not necessarily shared by the Institute or the publisher. The Institute, the publisher and authors accept no responsibilities for loss resulting from any person acting, or refraining from acting, because of views expressed or advertisements appearing in the magazine.

© Hong Kong Institute of Certified Public Accountants May 2016. Print run: 7,060 copiesThe digital version is distributed to all 39,721 members, 19,163 students of the Institute and 2,252 business stakeholders every month. Subscription: HK$760 for 12 issues per year.See www.hkicpa.org.hk/aplus for details.

President Ivy Cheung

Vice Presidents Mabel Chan, Eric Tong

Chief Executive and Registrar Raphael DingEmail: ce@hkicpa.org.hk

Head of Corporate Communications Stella To

Editorial Advisory Group Daniel Lin (Convenor), Eric Tong (Deputy Convenor), Wiley Pun, Colin Wong, Yip Ka-ki, Stanley Yuen, Raphael Ding, Chris Joy

Editorial Manager John So

Editorial Coordinator Maggie Tam

Office Address37/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong KongTel: (852) 2287-7228 Fax: (852) 2865-6603

Member and Student Services Counter27/F, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong Email: www.hkicpa.org.hk Website: hkicpa@hkicpa.org.hk

48AFTER HOURS

48 Books The Future of the Professions reviewed; Interview with co-author Daniel Susskind

50 Life and everything Sailing and fitness, as recommended by Institute members

52 A life in the day Nury Vittachi meets David Gallie, Co-Founder of Black Kite Brewery

26A dynamite life

Mark Szeto, Chief Executive Officer of pyrotechnics company Glorious Group, explains how his company is tackling growing environmental concerns and changing regulations

Book review

News Institute news Accounting news

Institute news

Carrie Lam consults Institute members on retirement protection reformCarrie Lam, Chief Secretary for Administration, spoke to about 400 members last month on the topic of retirement protection, in the latest seminar of the current affairs series that aims to promote members’ awareness of important social and economic issues.

She highlighted the urgent challenge of Hong Kong’s ageing demographics, with the elderly population forecast to grow from 1 million to 2 million in the next 15 years, and said some tough decisions would need to be made.

Poverty alleviation and care for the elderly are key policy priorities of the government, Lam said, adding that retirement protection and elderly poverty are closely linked. Mandatory

Provident Fund Schemes launched in 2000 cannot fully address retirement protection for the elderly, the secretary cautioned, acknowledging that there have been repeated calls from the community over the years for a universal retirement protection system. The government has set aside HK$50 billion for improvement measures, Lam added.

Members are invited to submit their views to the consultation to views@rp.gov.hk by 21 June.

Institute launches soft skills seriesIn recognition of the ever-increasing importance of soft skills to the

repertoire of CPAs, the Institute has launched a series of seminars and workshops. The soft skills series will focus on a range of areas that world-renowned business leaders and organizations say are essential for business and individual success. The series kicks off at the end of May, with interpersonal and communication skills, and then continues throughout the year, covering people management skills, presentation skills, creative thinking and problem solving skills, and leadership and management skills.

ObituariesThe Institute notes with regret the passing of Chu Wai-kok and Wong Kwok-fung.

Carrie Lam, Chief Secretary for Administration, speaks to members on how demographic changes prompt urgent need for a rethink on retirement protection

4 May 2016

aplus

Disciplinary findingChan Ying Kit, CPA (practising)

Complaint: Failure or neglect to observe, maintain or other-wise apply Hong Kong Standard of Auditing 500 Audit Evidence and HKSA 700 Forming an Opinion and Reporting on Financial Statements.

Chan audited the financial statements of two Hong Kong private companies for the period ended 31 December 2010. In one of the audits, Chan failed to obtain sufficient evidence for a material expenditure. In the other audit, he failed to assess the adequacy of financial statement disclosure and obtain sufficient evidence to conclude the financial statements were

free of material misstatements, regarding investments in two subsidiaries. The complaint was made under section 34 (1AAA) of the Professional Accountants Ordinance.

Decision and reasons: Chan was reprimanded. In addition, he was ordered to pay a penalty of HK$50,000 and costs of the disciplinary proceedings of HK$96,158.60. In making its decision on sanctions, the Disciplinary Committee took into consideration, among other things, Chan’s decision to contest the complaint and the absence of dishonesty on his part in committing the breaches.

Details of the disciplinary findings are available at the Insti-tute’s website: www.hkicpa.org.hk.

A Plus wins awardThe magazine you are currently reading has been recognized with an honours award by the Astrid Awards, an international pro-gramme that celebrates and rewards the most successful and influential creators of design communications in the world.

Membership survey lucky draw winnersCongratulations to Choy Kwok-wai, Chung Chin-hung, Lam Wai-sze, Law Chi-ho, Wong Miu-ling and Kent Wong Sze-king for winning prizes in the membership survey lucky draw. The survey results will be available soon.

Institute in numbers

15 Sports and Recreational Interest Groups with

To help members strike a better work-life balance and connect with fellow members, the Institute runs

11,736 members (one Institute member can join up to five interest groups)

The three most popular interest groups are:

1,745members

Badminton

1,298members

Golf

1,222members

Athletics

May 2016 5

NewsAccounting

6 May 2016

Illus

trat

ion

by H

arry

Har

rison

The Vatican suspended an audit of its 2015 finances by PwC last month, but said that the suspension is not due to issues with the Big Four firm’s work but pending an analysis of certain aspects of the auditing arrangement.

Unnamed sources told the media the decision was taken to determine whether proper procedures were followed when the contract was signed December last year by the Secretariat for the Economy, which is headed by Australian Cardinal George Pell.

The move is said to mark a setback for Pope Francis’ drive to reform the city-state’s scandal-ridden economy and align it with globally accepted accounting

standards. According to the Guardian, the surprise decision also exposes an internal rift between the church’s old guard and supporters of financial reform.

The suspension of the audit was announced in a letter to the Holy See departments on 12 April by Archbishop Giovanni Angelo Becciu, a senior official in the Secretariat of State, the body that handles the Vatican’s political and diplomatic affairs and is seen as sceptical of the financial reform efforts, reported the Financial Times.

Cardinal Pell said in a statement that he was “a bit surprised” by the suspension and anticipated the audit would “resume shortly.”

In 2014, Pope Francis endorsed a plan for the Vatican to adopt international standards, better internal controls, transparency and governance of the church’s finances. The Vatican bank’s senior officials have recently been hit by accusations of corruption, financial mismanagement and money laundering.

“Issues have emerged regarding the meaning and scope of certain clauses of the contract and their methods of implementation. Such elements will undergo the necessary examination,” said a statement released by the Holy See. “The commitment to adequate economic and financial auditing remains a priority for the Holy See and for Vatican City State.”

Vatican suspends PwC audit of state finances

aplus

Australia cracks down on multinational tax avoidanceThe Australian government announced the planned introduction of a diverted profits tax during its annual budget on 3 May, in a bid to further stamp down on multinational tax avoidance. The tax rate of 40 percent, rather the usual 30 percent, is similar to the so-called “Google tax” introduced in the United Kingdom last year and is expected to raise A$3.9 billion over the next four years. The government is also creating a new tax avoidance task force of 1,000 specialist officers who would pursue cases of deliberate tax avoidance and evasion under the new regime with harsher penalties.

China signs pact to close tax loopholeChina signed an agreement this month on the exchange of country-by-country reports by multina-tionals. The move reflects China’s contribution to a global effort to clamp down on multinationals alter-ing the price put on labour, services or intangible asset transfers within global operations, allowing them to minimize tax bills. Wang Jun, Commis-sioner of the State Administration of Taxation, signed the agreement during the 10th meeting of the Organisation for Economic Co-operation and Devel-opment Forum on Tax Administration in Beijing.

PwC opens global drone divisionPwC Poland launched commercial surveyor drones earlier this month after testing drone-powered technologies from April last year. The firm also set up its global drone headquarters in Poland, named Drone Powered Solutions, to focus on the use of drone technology and data analytics in business. Accord-ing to a report by the firm, commercializing drone usage could replace US$127 billion worth of existing business services and labour. In 2013, Poland became the first country in the world to introduce a full legal framework and institutions regulating the commercial use of drones.

EY calls for new rules for debt-equity swapChina’s banking regulators should bring in new poli-cies for the planned debt-equity swap programme, such as relaxing regulations on risk-weighted assets, to save banks from capital strains, said EY this month. Under the current rules of the China Banking Regu-latory Commission, if a loan is converted into equity, the amount of risk-weighted asset is enlarged four times for equities held for two years by the bank and 12.5 times if held longer, Jack Chan, EY’s Managing Partner of Financial Services, Greater China, told the South China Morning Post. In March, Premier Li Keqiang said that the government may use “mar-ket forces” to implement the swaps to ease the debt burden of banks and enterprises.

May 2016 7

Or US$4.4 billion, the net loss Toshiba reported for the recently

ended fiscal year. The figure is more than 10 times its loss from a year earlier, and partly a result

of a complete overhaul of its management after the company admitted to having overstated its

profits for several years.

A world of numbers

The value of mergers and acquisitions deals that have fallen

apart in the United States since the start of the year, according to data provider Dealogic. Reasons for failure include intervention by regulators, unwilling targets and

unsteady markets. The figure will be a record even if no further deals

fall through in 2016.

The amount that has been siphoned out of emerging economies such as China and Russia into offshore tax

havens, according to research by Tax Justice Network, an organization that advocates against tax avoidance. The

group is calling for an international commission to fight capital flight.

US$345million

¥483.2 billion

US$12trillion

aplusNewsAccounting

AI transforming face of Big Four hiringGiven the rate at which artificial intelligence is speeding up the au-dit process, the number of graduates hired by Big Four firms could drop by 50 percent by 2020, Steve Varley, Chairman and Manag-ing Partner of the EY’s United Kingdom and Ireland operation told the Financial Times. The onset of digital disruption means that graduates with skills in areas such as data analytics and computer science will be increasingly in demand in the future, noted the FT.

Brazil’s president accused of being creativeImpeachment proceedings have begun against Brazil’s president, Dilma Rousseff, based on allegations that she broke fiscal laws last year to hide problems with the country’s balance sheet. Her accusers say she used creative accounting techniques to delay moving treasury funds to state-owned banks to pay for govern-ment initiatives, making Brazil’s public finances look better than they actually were. Rousseff has denied wrongdoing saying her predecessors did exactly the same thing.

FASB proposes updates to revenue standardThe Financial Accounting Standards Board in the United States has issued a proposed update to improve guidance for the new revenue recognition standard, in relation to collectibility, non-cash consideration and completed contracts at transition. The FASB and the International Accounting Standards Board released the long-anticipated converged revenue recognition standard last year. However, many companies said they were not ready for implemen-tation, so the boards delayed the effective date until 2018.

Internal appointment for new Toshiba CEO Toshiba has named company veteran, Satoshi Tsunakawa, as its new CEO, pending investor approval. He will replace Masashi Muro-machi, who was appointed acting chief executive officer in the af-termath of an independent investigation revealing that the company had over-stated profits by around US$1.22 billion between 2008 and 2014. Prior to his appointment, Tsunakawa was head of Toshiba’s medical equipment division before it was sold to Canon.

Dilma Rousseff

AFP

Satoshi Tsunakawa

May 2016 9

PAIBsStart-up CFOs

10 May 2016

aplus

Despite the risk, some finance chiefs would rather roll their sleeves up at a start-up instead of working at a brand-name corporation. Jemelyn Yadao looks at the ambiguous yet crucial role of a CFO at an early-stage companyIllustrations by Benedetto Cristofani

Leading the start-up way

May 2016 11

PAIBsStart-up CFOs

V ictor Tan’s career has been a lengthy journey of learn-ing and progression with a

few stopovers at large international companies, including a Big Four. However, earlier this month, he stopped in his tracks and went back to the start.

The Hong Kong Institute of CPAs member left his role as direc-tor at a specialist IT and critical facilities consulting company to work at a start-up – his own. “My partner and I identified a need, we developed a technology to address that need, and we’ve got to a position now where the technology has been developed and the proof of concept is done. It’s time for me to focus full-time on developing the product that will leverage on that core technol-ogy,” explains Tan. Without going into the details, he says that his start-up revolves around recreational sports technology.

The prospect of seeing the product turn into a global household name is one of the main reasons he couldn’t resist jumping ship. For other finance chiefs, the lure of working for a start-up usually lies within the opportunity to create a finance function from scratch and play a key part in a fast-growing environment.

Recent Hong Kong start-up suc-cess stories include online lending platform WeLab – which started in 2013 and now boasts around three

million users – and fashion e-commerce start-up Grana – which raised US$3.5 million in seed funding. While the upsides for start-ups can be huge, to get to that stage, the start-up chief financial officer has to address a wide range of issues that their counterparts in bigger companies don’t normally have to deal with.

As Tan is finding, start-ups often demand more and the CFO has to wear different hats. “I am the CEO/CFO/business developer/product developer/technician/tea lady,” he says. “We don’t have a specific divi-sion in terms of responsibilities. By virtue of our backgrounds, we tend to gravitate towards a certain role but the roles are not clearly defined, not at this stage.”

The obvious problemEarlier this month, Chinese e-com-merce giant Alibaba announced the first three start-ups selected for its HK$1 billion investment fund under its Hong Kong Young Entrepreneurs Foundation. Online fashion rental and sharing site Yeechoo, on-demand logistics company GoGo-Van, and Shopline, an e-commerce platform for merchants, were all chosen to receive a portion of the fund to help scale their businesses.

But despite the often positive news in the start-up space, the grim reality is that almost nine out of 10 fail according to Fortune,

with one of the primary drivers, of course, being the lack of sufficient resources.

Unlike established organiza-tions, new cash-strapped start-ups do not have the luxury of having reliable sources for funds, neither through its own revenue or profit, nor the ability to borrow from the banks, notes Tan. “We haven’t got any revenue stream yet. But you need to have incoming funds from somewhere to pay for the outgo-ings.” He is currently in the process of applying for the local govern-ment’s innovation technology fund.

Therefore, having a CFO or finance director with top-notch fundraising capabilities is criti-cal for start-ups, particularly for meeting the funding needs of the company’s product develop-ment plan. “You can have the best technology in the world but if you can’t implement that into a product that people want or to convert the technology into a product that you can put to market, then your start-up is not going to be successful,” says Tan.

It’s commonly believed that the right time for start-ups to bring in

“ I am the CEO/CFO/business developer/product developer/technician/tea lady.”

12 May 2016

aplus

a CFO is when it is generating mean-ingful revenue or when the founders are planning for an initial public offering. But Honnus Cheung, CFO at Travelzoo Asia Pacific and an Institute member, thinks that a CFO with industry knowledge, and whose role today is more collaborative and has more strategic influence, can be hired much earlier on. “In the tech industry, for example, you need to at least have a prototype that has passed a few tests first. Once you have the prototype, then you can dis-cuss the business plan with the CFO who can start to give valuable input – how to do the fundraising, whether you should grow the business aggressively or develop the product technologically at the kick-start via getting funds from angel or private investors,” says Cheung, who has worked for the Asia operations of both Yahoo and her current com-pany from the start-up phase.

Hands-on-roleStart-ups require more of a roll-up-your-sleeves approach from the CFO and often entail deep involvement across the company. Some such as food delivery service company Foodpanda need experts to help build the proper procedures for each team. “Start-ups tend to have dif-ferent or even new business models compared to what is normal on the market. As the CFO of a new start-up, you have to work very closely

with each department to understand each process,” says Billy Lau, CFO at Foodpanda and an Institute mem-ber, adding that this is key to further analysing business performance as well as helping management make executive decisions.

Lau, who joined Foodpanda last year, previously worked at KPMG for almost five years before start-ing his own restaurant business in 2011. “These experiences helped me identify what typical challenges start-ups encounter when setting up procedures and developing best practices for the business model.”

For Karen Ho, CFO at WeLab, her key responsibilities include much more than just building back-end infrastructures from the ground up. “Apart from setting up the infrastructure from scratch – system, policies and processes – I am part of the leadership team building an early-stage company, which comes with its own unique challenges,” says Ho, an Institute

member. “For example, hiring a team within a short period of time, dealing with regulatory uncertainty since we are disrupting incum-bents, building a young team’s culture, and dealing with people-related problems that came with a fast growing company.”

The hiring process was an unex-pected challenge for Ho. “Accoun-tants are naturally risk adverse by training and candidates prefer multinational corporations and Big Four accounting firms. When we first started without a strong brand name, it was very difficult for us to attract talent,” she says.

Start-up CFOs often take on increasingly diverse duties as their companies grow, such as merger and acquisition activities.

This was the case for Cheung at Travelzoo. The acquisitions, which took up most of her time and focus when she was the first finance manager at Yahoo’s Asia Hong Kong office, further strengthened the Internet company’s position in the Asia-Pacific market. “I handled quite a lot of M&As, some of them were successful, such as the Kimo-Yahoo merger in Taiwan, some of them were not successful,” remem-bers Cheung. “But when I joined, Yahoo had zero revenue in Asia and had less than 24 folks. When I left, the company was valued around US$1 billion and had around 1,500 folks in Asia. Most of the roles

“ Once you have the prototype, then you can discuss the business plan with the CFO who can start to give valuable input.”

According to a survey conducted

last year by Invest Hong Kong, 1,558 registered start-ups were operating in co-

working spaces in Hong Kong, a 46 percent increase from 2014. Fifty percent of the start-ups were

founded by Hong Kong locals,

while 43 percent had founders

from China and Taiwan.

May 2016 13

PAIBsStart-up CFOs

14 May 2016

aplus

came either organically or through the M&As that I handled.”

Another role for the start-up CFO is fundraising at different stages of a company’s growth. Working closely with WeLab’s Founder and Chief Executive Offi-cer Simon Loong Pui-chi, Ho not only helps to ensure the company’s strategies are being implemented effectively, she also plays a role in adding financial heft. Earlier this year, the company completed its series B fundraising, one of the largest in the FinTech industry. “After months of hard work...With the funding and support from influ-ential investors we are now in an even better position to take on the competition,” says Ho. “No doubt, there are a lot of ups and downs but that’s what makes life interesting.”

Investor relations are normally also a big part of the job for a start-up CFO. One of the biggest differ-ences in working at a start-up is the importance of “personal branding,” notes Cheung, who, because of her Asia start-up expertise, was assigned by Travelzoo’s founder to establish the company’s footprints in Asia when she first joined. “During that time, I was already part of a solid finance and banking network in Asia, which Travelzoo

didn’t have. That means the banks, the investors trust me and trust that I wouldn't join a bad company due to my previous track record,” she says. “Your personal integrity and professionalism is something you can take away from your previous job. You yourself will have a track record even if your next job is less famous or is a start-up company with no track record.”

Cheung adds that such cre-dentials usually come in handy when interpreting an early-stage company’s projected profit and loss to stakeholders.

Positive energyMost start-up CFOs agree that outstanding communication skills are important. “In a fast chang-ing environment, processes must be learned and understood by the individual,” says Lau at Food-panda. “Also, always ask if what you’re given is the perfect system for the business model.”

As with any organization, risk management is vital for start-ups. However, new start-up CFOs should have the flexibility to for-mulate a risk management strategy recognizing that the company may push to grow as quickly as possible. “As the CFO, it is important to be

able to keep up with the pace of business expansion and ensure that the company’s interest is pro-tected,” says Ho at WeLab.

However, being overly risk-averse and unable to see the bigger picture could hinder the growth. “With any idea that is put out there, it’s easier to find risks or negatives with it than positives.” says Tan.

Staying positive and energetic is crucial for CPAs thinking about joining a start-up. “Accountants need to step out of their comfort zone – that is the only way to learn and grow,” says Ho. “In this ever changing world, the accounting training gives you the skillset but you also need the right mentality to excel. WeLab’s founder Simon is a CPA too and see what he achieved.”

“ You yourself will have a track record even if your next job is less famous or is a start-up company with no track record.”

May 2016 15

Thought leadershipWitman Hung

aplus

May 2016 17

T he establishment of the Qianhai Shenzhen-Hong Kong Modern Service

Industry Cooperation Zone in 2010 was a milestone in the integrated development of a pilot area for close cooperation between Guangdong and Hong Kong. Qianhai’s attraction to investors was further enhanced when the Guangdong pilot free trade zone was launched by the State Council in April 2015, offering great opportunities for Hong Kong professionals to provide their service to businesses in Qianhai, Shenzhen and, to a larger extent, the Guang-dong province. Even in the early days of the establishment of Qian-hai, we proposed the recognition of Hong Kong professional certifica-tions and acceptance of Hong Kong professionals to practise in Qianhai without having to obtain their respective certifications from Main-land authorities. This, however, is a long-running goal and until now the authority has successfully opened up architecture, construction-related engineering as well as social work. The legal and auditing practices, however, are governed by their respective ministries of the State Council and while we were success-ful in pushing the “door” open a bit, there are still various restrictions.

The Qianhai and Shekou area within the Guangdong pilot free trade zone managed to attract over 43,000 newly registered enterprises in the past years with registered capital in excess of 1,800 billion yuan. By the end of March, the total number of registered enter-prises in the area reached 88,600 with a registered capital of 4,000 billion yuan.

Many of these enterprises are planning to develop both the Mainland and overseas markets, and are eager to seek professional services from Hong Kong profes-sionals. In particular the account-ing, bookkeeping and assurance services offered by Hong Kong CPAs will find a growing market there, thanks to their tradition and reputation in professional integrity, international exposure and in-depth knowledge. After all, there have been a long history for Hong Kong CPAs serving Mainland enterprises in handling interna-tional trade and investment.

On the other hand, Qianhai has introduced a series of incentive mea-sures to encourage professionals to build their careers in the area.

Qualified Hong Kong CPA firms newly incorporated in Qianhai are eligible for a reduced corporate

income tax rate at 15 percent. Mean-while, individual Hong Kong CPAs who are eligible to practise in Qian-hai are eligible for the preferential tax incentive in which the excess of China individual income tax exceed-ing 15 percent will be subsidized by the Shenzhen municipal govern-ment in a “levy first, reimburse later” manner; the subsidies will be exempt from the tax.

Qianhai is offering a financial incentive of up to 2 million yuan to Hong Kong enterprises based on 50 percent of paid-up capital, in the form of cash incentive or interest subsidy of 3 percent.

Finally, as a pioneer in simplifi-cation of administrative procedures, Qianhai implements the “One-stop service for multiple certificates” for foreign business registration, speed-ing up the processing time to within a few days. Qianhai also standard-izes the administrative procedures, keeping the full process traceable online, and establishes an enterprise credit information platform and a credit network.

With “Support Hong Kong, ser-vice Mainland, face the world” as its motto, Qianhai is striving to enable Institute members and other profes-sionals to explore and expand their business endeavours there.

The Principal Liaison Officer for Hong Kong, Shenzhen Qianhai Authority, considers the business opportunities that await Hong Kong CPAs in Qianhai

Opportunities for Hong Kong professionals

“The accounting, bookkeeping and assurance services offered by Hong Kong

CPAs will find a growing market there, thanks to their tradition and reputation in professional integrity, international

exposure and in-depth knowledge.”

TechnologyBlockchain

18 May 2016

aplus

Apopular way to explain blockchain technology, as a casual web search

reveals, is to use Lego bricks. This technology, however, is far from kids’ stuff.

It had its origins as a platform for the cryptocurrency Bitcoin, which excited the start-up geeks and allowed for more nefarious activities related to the dark web. But block-chain technology is now stimulating the world of financial services and seen, ironically, as a path to greater transparency and accountability.

A blockchain is usually defined as a set of distributed ledgers, which are “mathematically signed” to prevent unauthorized tampering, thereby providing extra security for record-keeping for their users and making the transaction records more traceable. A PwC report titled What is Blockchain? introduces it as a decentralized ledger, or list, of all transactions across a peer-to-peer network.

Blockchain has the potential to revolutionize the worlds of banking and financial services. According to a 2015 report by Brit-

ish bank Santander, venture fund Anthemis and research firm Oliver Wyman, blockchain technology could save banks US$15-20 bil-lion by reducing “infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance.”

“There are huge opportunities with the technology,” says EY’s Regional Managing Partner for Financial Services, Asia-Pacific, Gary Hwa. “The real benefit of the technology in longer term we see will be in the ability to create new business models, such as self-running, self-regulating market-places, decentralized autonomous organizations, or the integration of finance into the Internet-of-Things, each of which may fundamentally change the nature of commerce.”

In this year’s budget, the Finan-cial Secretary John Tsang men-tioned “blockchain,” the first time it has been specifically referred to in the annual address. “Government will encourage the industry and relevant organizations to explore the application of blockchain technology in the financial services

industry, with a view to develop-ing its potential to reduce suspi-cious transactions and bring down transaction costs. The Cyberport will provide training to the industry through its incubation programme to promote relevant technologies for developing more services and products,” Tsang announced.

This came 12 months after announcing in his previous budget the setting up of a high level Steering Group on Financial Technologies, tasked to advise the government on how to develop and promote Hong Kong as a FinTech hub. Its report was released two days after the 2016 budget.

Following the release of the report, the Securities and Futures

THE BLOCKCHAINS THAT BIND USBlockchain technology is creating a buzz in the worlds of banking and finance that it will lead to faster, cheaper and more secure services, but at what cost and is Hong Kong ready for the distributed ledger? James Kelly reportsIllustrations by Ester Zirilli

“ The real benefit of the technology in longer term we see will be in the ability to create new business models.”

May 2016 19

TechnologyBlockchain

Commission, acting on the recom-mendations, set up a FinTech contact point as a dedicated channel to encourage businesses involved in the development and application of financial technology in Hong Kong to engage with the SFC and under-stand the applicable regulations. The SFC has also established a high level advisory group, which will focus on the opportunities, risks and regula-tory implications of developments related to FinTech.

Although several of the report’s recommendations have already been acted on, it has attracted criticism from FinTech start-ups. Joseph Wang, Chief Scientist of start-up Bitquant Research Laboratories, and a former vice president in the quantitative research division of JPMorgan, was disappointed with the work of the steering group.

“The effort of the Hong Kong government to develop Cyberport as a FinTech centre is extremely well in meaning, but the problem is that there is not as yet the critical mass of local FinTech to take a thought leadership role.”

However, the government’s approach is supported by Hong Kong Exchanges and Clearing, which agrees that Hong Kong’s financial services sector should explore the use of blockchain technology. “HKEx continues to monitor blockchain developments, particularly in financial services,

and evaluate the potential oppor-tunities arising from the develop-ments,” says an HKEx spokesman.

Roadblocks aheadThe question of regulation of blockchain is proving as challeng-ing for Hong Kong as it has in other jurisdictions.

According to Ian Wood, a Hong Kong-based Partner at law firm Simmons & Simmons, the devel-opment of FinTech requires the existence of a regulatory regime that enables start-ups to provide their services to the public legally. “The regulatory regime for financial busi-ness varies significantly across Asia but unlike the United Kingdom, for example, there has been little direct consideration of the FinTech sector by Asian regulators,” says Wood.

“Hong Kong has yet to introduce any regulation that specifically addresses FinTech businesses. There are a number of aspects of the Hong Kong regulatory regime which are likely to impact businesses that are providing financial services or that operate platforms on which investments are available.

“Without a clear regulatory framework for FinTech businesses, Hong Kong may find it difficult to encourage the use of innovative technology in financial services or business structures and there is also a risk of unscrupulous or inexpe-

rienced businesses damaging the industry generally.”

The Hong Kong Monetary Authority has recently established the facilitation office to assist the industry in understanding the local regulatory landscape and to facilitate a healthy development of FinTech in Hong Kong. The office has three main functions – work-ing with the industry to promote research in FinTech solutions; providing a platform for industry communication and outreach activities; and acting as an inter-face and major point of contact between FinTech market partici-pants and regulators.

The HKMA says it adopts a risk-based and technology-neutral approach in its supervision. This means that when developing and implementing regulatory frame-work and requirements, it will only base on the intrinsic characteris-tics of the financial activities or transactions, and the risks arising from them.

“As a regulator, we should fully understand the characteristics, potential and risks of FinTech. Take blockchain as an example: we must thoroughly consider the benefits and risks to the financial system should this be widely used at the retail or corporate customer level,” says Norman Chan, HKMA Chief Executive.

EY’s Hwa says there is no more a

“ Without a clear regulatory framework for FinTech businesses, Hong Kong may find it difficult to encourage the use of innovative technology in financial services or business structures.”

20 May 2016

aplus

May 2016 21

TechnologyBlockchain

22 May 2016

aplus

need for a regulatory framework for blockchain technology than there is for databases or networking.

“Saying that, there should cer-tainly be regulatory frameworks for particular applications of the tech-nology as they are deployed, if they pose risks, financial or otherwise. This is one of the challenges of deploying this technology, as it cre-ates paradigms which we haven’t had to deal with previously.”

Regional hubHong Kong’s ambition to be recog-nized as a regional hub for emerg-ing blockchain technology has caught the attention of Australia.

In January, the Commonwealth Bank of Australia, one of the coun-try’s big four banks, launched an innovation lab in Hong Kong with plans for a further lab in London later this year. Its inaugural lab in Sydney has already created a live demonstration blockchain.

“The Hong Kong lab will allow us to partner with the brightest minds across the city’s accelerator, government, university, start-up and FinTech communities to fur-ther develop creative and innova-tive solutions for our clients,” says the bank’s Group Executive, Institutional Banking and Markets, Kelly Bayer Rosmarin.

In April, a new Australian FinTech hub Stone & Chalk, which represents dozens of start-ups, met with Hong Kong’s key financial regulators – the SFC, the Office of the Commissioner for Insur-ance and the HKMA – to discuss the way forward. Stone & Chalk

is looking to establish a FinTech ecosystem across the region.

In the same month, Austra-lian FinTech company Austreme announced it was setting up its regional headquarters in Hong Kong. The company specializes in big data and website security, offering solutions to the banking and finance industries related to e-commerce and payment transactions.

Meanwhile, the Big Four have been busy recruiting experts and setting up dedicated blockchain teams. Earlier this year, PwC announced it has recruited 15 lead-ing technology specialists to exploit and commercialize blockchain. The new team will be based in PwC’s Belfast office this year.

In Hong Kong, EY has dedi-cated blockchain experts operating within a global integrated team. “In addition, we are also look-ing at the technology to provide services to our clients not only of an advisory nature but also across tax, assurance and transaction

advisory services,” says Hwa. “For example, there may be the potential to use the technology to streamline different types of audit processes, and so we are exploring how we may enable that. We also aim to leverage blockchain inter-nally to operate more efficiently in the future.”

A matter of trustBlockchain’s ability to create trust in the digital world among untrusted or semi-trusted parties is incredibly valuable according to Hwa, “par-ticularly since the role of a trusted intermediary is the base of so many businesses and institutions.”

“But it is unlikely that current entrenched players will be dis-placed by the technology in the near future, as the technology is only the enabler: integrated business models have been built around the current technology paradigm, and it is hard to change those models without clearly identified savings.

“The timing and costs most people see in the financial sector has little to do with the technol-ogy: more often it has to do with the regulatory controls and opera-tions, which blockchain technol-ogy does not solve.”

Bitquant’s Wang offers a note of caution on the way forward. “The main risk is premature regulation in which it gets regulated out of existence before it can do anything. Right now blockchain is 95 percent hype, and having regulators try to deal with a technology that for the most part doesn’t exist yet, is tricky.”

The development of blockchain

technology could have a significant

impact on Institute members

especially those 32 percent

working in financial services, banking,

capital market and technology

industries

“ We are also looking at the technology to provide services to our clients not only of an advisory nature but also across tax, assurance and transaction advisory services.”

May 2016 23

How to...Ricci Leong

aplus

May 2016 25

Why is mobile device security so important? Why do specific security controls have to be developed for a BYOD strategy? One of the main reasons is that when users access corporate information, the risk of tampering or losing data could happen through the users’ mobile devices, which may be out of the organization’s protected premises.

Therefore, corporations have to lay down and implement a BYOD strategy that fits into their unique business environment instead of adopting the strategy of others.

Nevertheless, the BYOD plan is designed for staff to adopt when they use their personal devices to access corporate data for work pur-poses. If the plan introduced is too restrictive, some staff may feel they are trading-off their own devices for business functions and may ulti-mately decide not to participate.

Implementing a BYOD planOne of the pitfalls in implementing a BYOD plan is the misconception that mobile device management or enterprise mobile management solutions will automatically fit into every enterprise environment. On the contrary, successful implemen-tation of enterprise mobile manage-ment solutions will depend on a proper BYOD plan.

In order to define and enforce a BYOD plan, the corporate could implement a four-step risk-based approach:

Understand the business needsFirstly, the corporate should determine what application to be used for handling certain types

of corporate data through mobile devices from a holistic view. Some corporates allow users to browse email, office documents, corporate internal website or even internal applications. These applications may have different nature, contain-ing data of different sensitivity lev-els, and means of access.

Perform risk assessment of business functions and data to be mobilizedAfter evaluating the business needs, nature of data and mobile applica-tions, corporates should determine the risk, threats and impacts of data loss through a staff member’s per-sonal mobile devices. Corporates have to evaluate the threats associ-ated with attacks on mobile devices, mobile infrastructure, programming environment and development schemes employed in mobile apps.

Define the appropriate IT policyIT and BYOD policies lay down the foundation of controls that sup-port the use of BYOD in a corpora-tion. It should include:• Enforcing corporate classified

data to be encrypted in transit, at rest or in use on a mobile device

• Enabling the right of corporate IT team to remotely delete or completely wipe corporate data residing in any personal mobile devices enrolled in the BYOD programme

• Enabling the corporate IT policy to be applied to mobile devices

These will reduce the risks associ-ated with the use of mobile apps in an BYOD environment by restrict-ing the exposure of corporate data.

Only users who allow corporate IT team to control over their mobile devices can be granted the right to access corporate data.

Enforce mobile control solutionsWith the controls listed in the policy, corporates could move forward to implement appropri-ate enterprise mobile management solutions either in-house or through a cloud-based solution. Staff taking part in the BYOD programme will have corporate enterprise mobile management software installed in their mobile devices with security controls enforced remotely. When-ever mobile devices are found to be lost, the corporate IT team can initiate the function to lock or even wipe out data from the device.

ConclusionsBYOD will no doubt bring effi-ciency and convenience, but prop-erly developed policies have to be in place to ensure the protection of corporate data and applications, even though “freedom” or “private life” for staff would be affected. The corporate IT team should be able to determine the usage of the device, locate the device or demand users to have stronger passwords.

A BYOD programme should be a balance between user control and corporate control of data. In order to smoothly implement the programme, corporates should determine what controls are required through a risk-based approach. If the data is considered to be too sensitive for BYOD to be used or the used mobile devices are not controlled, one can still consider adopting a standard external access scheme.

…successfully implement a BYOD plan

Partner of TS IT Advisory Services says that while bring-your-own-device policies can bring opportunities, the practice can often create security headaches

Success ingredientMark Szeto

Szeto previously worked for numerous international

investment banks, mainly executing project

financing transactions

26 May 2016

aplus

Watching fireworks light up the night sky in times of celebration is an age-old pastime. Nowadays, the pyrotechnics industry is faced with major challenges brought by environmental advocacy and tougher regulations in China. Jemelyn Yadao talks to Mark Szeto, Chief Executive Officer of fireworks specialist Glorious Group, about how his company is adapting while putting on spectacular showsPhotography by Anthony Tung

THE DYNAMITE LIFE

May 2016 27

Success ingredientMark Szeto

Szeto with a 24-inch-diametre

firework shell dummy that was made in

Japan, known for its fireworks

craftsmanship

28 May 2016

aplus

“ If any debris comes down, yes a chemi-cal may be attached to it but if it’s good quality, that shouldn’t happen.”

May 2016 29

Success ingredientMark Szeto

30 May 2016

aplus

“ Factories will be greatly reduced from thousands to maybe 30.” Achieving

different colours in fireworks is

done by burning different metal

elements. When certain elements

burn, they produce certain colours, for example, barium

burns green, sodium burns

yellow, and lithium and strontium

burn red.

May 2016 31

Work and lifeHiking

Clement Chan taking a casual hike on a paved trail

32 May 2016

aplus

Ever since Clement Chan started hiking in early 2015, he has noticed an improve-

ment in his overall sports per-formance. The avid golfer, skier, horseback rider and now hiker is the Assurance Managing Director at BDO and a past president of the Hong Kong Institute of CPAs.

“My golfing buddies asked me what I’ve been doing recently because they saw an improvement in my game,” says Chan. “Hiking really builds up your strength and endurance and changes your whole physical condition.”

In addition to the physical benefits of hiking, the versatile activity allows busy CPAs to stretch their legs and socialize at the same time, forming bonds on the mountain trails as they climb to the peak. Many Hong Kongers, CPAs included, take advantage of the city’s unique proximity to a variety of trails and terrains, as well as the careful planning that went into developing safe hiking environments.

Chan began hiking regularly to train for the Oxfam Trailwalker, a 100-kilometre hiking event along

the MacLehose Trail to be completed in teams of four within 48 hours in November 2015. The fundraiser has been raising money for various projects around Africa and Asia since 1986. “I have CPA friends who are Oxfam Trailwalker veterans and I tagged along their training sessions for fun at first,” says Chan.

Last year, the Institute had 10 teams participating in the Oxfam Trailwalker, with 40 CPAs commit-ting to the long hike on the MacLe-hose Trail from Sai Kung to Yuen Long, which was recently named one of the best hikes in the world by the National Geographic Society, among trails like the Everest Base Camp Trek in Nepal and the Tour du Mont Blanc through France, Italy and Switzerland.

Starting from three-hour hikes in May and building up to eight or 10-hour hikes by November, Chan hiked one day each week to prepare for the Trailwalker. “I usually hike with fellow CPAs or other Council members and it’s a completely different experience seeing them in the office compared to on the trail,” says Chan. “Many CPAs hike together because we are

in the same social networks,” says Chan. “More people end up joining because they see how great the experience is.”

Although committing to the Oxfam Trailwalker tested his nerves, the comradeship that resulted from the 100 km trek was worth the effort. “When we reached the finish line, my team changed into our CPA shirts so that we would look fresh for the photo,” remembers Chan. “Some-how, my jersey was too small but I managed to squeeze into it,” he laughs. Along with fellow CPAs Patrick Law, Albert Wong and Edward Yuen, Chan made it to the finish line after 35 hours, 59 minutes and 35 seconds of hiking the MacLehose Trail.

Never more than an hour away from the city, hiking trails in Hong Kong are both some of the most accessible and most

scenic in the world. Tigger Chaturabul talks to active Institute members to find out what they love about hiking and how they

prepare themselves for mountain trekkingPhotography by Anthony Tung

Into the wild

“ When we reached the finish line, my team changed into our CPA shirts so that we would look fresh for the photo.”

May 2016 33

Work and lifeHiking

“ In the winter or when it’s not too hot, I can usually run around the island in eight hours.”

Building enduranceWhen Jeremy Chiu needs to prepare for a marathon or hiking event, he will always find the time to train. The Head of Asset and Liability Management at the Bank of Com-munications and Institute member remembers having to work until late at night, changing into his workout clothes at the office and running all the way home. “That’s one way to practise as a busy CPA,” he laughs.

Chiu stresses the importance of maintaining consistent training sessions to avoid injury on the trail. “On weekday mornings I run around the Hong Kong Parkview area and on weekends, I do longer distances,” he says. He enjoys running around Hong Kong Island, a 55-60 km route

with flat roads, cross country trails and slopes, which provides him with useful cross training. “In the winter or when it’s not too hot, I can usu-ally run around the island in eight hours.”

Chiu has been doing short distance running since his univer-sity days in the 1980s until long distance running started to gain popularity in Hong Kong in the mid 80s and 90s. “I got involved with 10 km running around 2003 to build up my endurance, because short distance running was more focused on speed,” he says. “It was more challenging.”

When Chiu registered for the Sowers Action Charity Marathon in 2006, he was looking for a

change in landscape. “When you run, you’re usually on a flat road but for trail running, you have to go through mountains, parks and more,” he says. The charity mara-thon is a 42 km hike from Yau Tong to Tai Po that must be completed within 12 hours.

In addition to the extra chal-lenges of trail running, Chiu enjoys the versatility of hiking in general. “I can train with CPA companions for team building, practise with marathon buddies for shorter races to build speed, hike by myself for meditation and relaxation or even hike with my family at lower speeds,” says Chiu. His son, aged 18, has also been trail running with his father since the age of 13, earn-

Jeremy Chiu training for trail running in the early morning mist

34 May 2016

aplus

ing medals and championships in individual races and team category races, for example, for the annual fundraising walkathon Green Power Hike.

As a successful trail runner, Chiu knows the power of never giv-ing up. “The first time I signed up for the Oxfam Trailwalker in 2007, I failed to complete the 100 km because I wasn’t strong enough and didn’t have adequate preparation,” says Chiu. When he joined again in 2008, he completed the trek with his colleagues and cemented one of his most memorable hiking experi-ences yet. “Completing the Trail-walker event demonstrated that I had the strength and confidence to finish such a long trail,” says Chiu. “After 2008, that’s when I really got

into long distance hiking, because I knew I could do it.”

He has completed 36 running marathons and over 50 ultra trail running and hiking marathons since 2005, including events in Hong Kong, Taiwan, Korea, Japan, Berlin, Paris and more.

Staying togetherWhen Alan Fung is on a trail, he pays close attention to the needs of his group mates. He could be calling out warnings for slippery steps, providing extra balance support or watching out for dogs for his canine-fearing friends. When the Assistant Manager at Grant Thornton and Institute member was in second-ary school, his friends invited him to participate in four activities to

receive the Hong Kong Award for Young People. The categories were service, skills, expeditions and physical recreation. The expedition category required him to hike for three days and two nights, camping in different areas of Sai Kung.

“I was the smallest and slowest hiker at the time,” remembers Fung. He appreciates the loyalty of his team, which helped him carry sup-plies and kept his pace throughout the journey. “I was grateful because they didn’t try to compete with the other teams but instead stayed with me. We really bonded together because we would share the same tent at night and spend time talking before going to sleep. It was an amazing experience to wake up with the grass under us in the morning.”

Alan Fung (centre) and Grant Thornton colleagues Nicolas Tang (left) and Toby Yeung (right) hiking downhill

“My favourite part of the process is seeing the view after climbing

thousands of steps.

May 2016 35

Work and lifeHiking

Terry Chiu running through a shaded trail

36 May 2016

aplus

Fung usually finds time once a month to go hiking, choosing trails that are challenging but not too strenuous. “My favourite part of the process is seeing the view after climbing thousands of steps,” he says. “It’s amazing that you can see the sea because Hong Kong is a coastal city and that’s one of the rea-sons why hiking here is so special.”

Now Fung often hikes with his colleagues at Grant Thornton, using social media groups to recruit interested hikers to join their weekend activities. “I usually hike with people who started working at the firm at the same time as me, although our group also consists of colleagues from all different rank-ings, even managers,” he says.

“When CPAs with different skills come together and apply some of those skills during hiking, the resulting teamwork leads to good experiences,” says Fung. “The communication on the trail is often around encouragement to keep hiking and this is also really useful in an office environment to cheer people up or lift up the mood.”

“Hiking together is a good chance for us to get to know and encourage each other to have work-life balance,” he adds.

Beating recordsAfter injuring his knee during the Oxfam Trailwalker in 1989, Terry Chiu told himself he would never participate in the hike again. In 2013, the Institute member joined a team with CPA friends and finished the route in 23 hours,

then again in 2014 with 19 hours and most recently, 2015 with 17 hours, 54 minutes and 11 seconds, surpassing the OTW Accounting Category the Oxfam Trailwalker.

“I was thinking about my retire-ment four years ago and started planning the things I could do,” says Chiu. “I joined some CPAs on their trailwalker training with no intention to really join the event and found that I became better prepared and better trained in trail running. I registered for the trailwalker with them the year after.” The now retired CPA previously worked as an audit manager at EY, finance director of North Asia at Energizer Asia Pacific and senior vice president of a listed company in Hong Kong.

“The first time I joined the Oxfam Trailwalker in 1989 was with colleagues from EY,” says Chiu. At the time, the race was in its third iteration and had fewer support teams available, which meant Chiu had to carry three to four litres of water in a heavy backpack without headlamps. “We relied on the old Chinese saying – anything dark is soil, anything white is rock and anything bright is

water – to walk at night,” he laughs. Chiu remembers doing soft

training with three other teams a week before the race, hiking up from Mui Wo to Sunset Peak on Lantau Island to watch the sunset. “After that we set up a tent, played cards until three in the morning and then hiked to Lantau Peak to watch the sunrise. It was one of my best hiking moments,” he recalls.

The Institute member nowa-days trains six days a week to keep his muscles toned and his heart beating to properly prepare for the annual fundraiser. Hiking trails are conveniently accessible in Hong Kong and Chiu can easily walk to section 4 of the MacLe-hose Trail from home without taking any transportation. “Even though I hike in the same areas, each time is different, whether I’m hiking with different people or experiencing different weather conditions,” says Chiu.

Today, in comparison to 1989, Chiu only needs to carry half a litre of water mixed with electro-lytes in a light backpack along with sunblock, sunglasses, a hat, some disinfectant, hiking poles, edible power gel and a GPS watch when he hikes the Trailwalker. “Because we’re CPAs, we calcu-lated that we can only walk around 3-4 km uphill per hour, which means there’s no way we can finish the trail in under 20 hours by just walking,” explains Chiu. “That’s why we have to do trail running when we can to beat our records.”

“ We set up a tent, played cards until three in the morning and then hiked to Lantau Peak to watch the sunrise.”

The Wilson Trail is one of the four

long-distance trails in Hong Kong. The 78

kilometre-long footpath is the

only trail in Hong Kong that

is impossible to complete by

foot – once hikers reach Quarry Bay, they need to take

MTR or other transportation to Nam Tin to

continue hiking.

May 2016 37

A lien is a right of a person to retain pos-session of the owner's property until the owner pays what he owes to the person in possession. Institute members some-times withhold clients' documents as a means to recover unsettled bills. Where a legal right of lien exists, the Institute recognizes the exercise of that lien in appropriate circumstances.

A right of lien will only exist where all four of the following circumstances apply:a. The documents retained must be the

property of the client who owes the money and not of a third party, no matter how closely connected with the client;

b. The documents must have come into the possession of the member by proper means;

c. Work must have been done on the documents by the member ; and

d. The outstanding fees for which the lien is exercised must be in respect of

such work and not in respect of other unrelated work.

When a member is about to render a bill, which is substantially different from bills rendered to the same client on earlier occasions for which the work may appear to be comparable, it is good practice to explain to the client the reason for the variation. Where the increase is caused by extra work being necessary, the reason for the extra work can be explained. Where the increase is caused by increased costs, this also can be explained. In many cases both factors will affect the total fee and any explanation will be mutually helpful.

Members, however, should note that certain company documents or records cannot be subjects of a lien. Examples are company records and accounting records of a registered company which have to be made available for inspection or be kept at the registered office or some other specified places.

From time to time, the Institute receives complaints against members for allegedly exercising liens in inappropriate circum-stances. Members should consult their solicitors before seeking to exercise a lien.

The exercise of a lien in fee disputes is perfectly legal, but members should remember that its nuisance value is likely to promote ill-will not only between the parties, but also towards the profession as a whole.

Institute resourceStatement 1.301 General Guidance Books and Papers – Ownership, Disclosure and Lien (Volume I of Members' Handbook.)

Exercise lien over documents or records of clients with caution

This article is

contributed by

the Institute’s

Compliance

Department

aplus

May 2016 39

SourceRetention of client’s records

It is not uncommon for liquidators to face difficulties reconstituting the affairs of insolvent Hong Kong companies with China operations. Often books and papers are missing and directors and senior manage-ment cannot be located.

Where this occurs, liquidators turn to the company’s auditors as the last available source of information and documents. Auditors often receive liquidators' requests for information and documents (including working papers) where former client com-panies have gone into liquidation.

When making requests, liquidators can rely on the court’s wide ranging statutory powers under Section 221 of the Com-panies (Winding Up and Miscellaneous Provisions) Ordinance to compel compli-ance. However, there are limits on what liquidators can request. From an auditor's perspective, there are various considera-tions: the uncompensated time involved in responding to very broad (and potentially oppressive) requests, and concerns that liq-uidators may use s221 to obtain otherwise confidential internal papers, in an effort to build a claim against the auditor.

Overview of s221 The s221 provides liquidators with powerful tools to obtain information and documents.

The Court of Final Appeal in Joint & Sev-eral Liquidators of Akai Holdings Ltd. v. The Grande Holdings Ltd. (2006) said of s221:

“Quite simply, it is to help liquidators to carry out their duties as effectively, quickly and economically as possible. To that end, liquidators need to identify, at an early stage, what promising paths they can pursue and, let it never be forgotten, what blind alleys they had best avoid so as not to

throw good money after bad.” Under s221, liquidators can ask the

court to:• Summon persons known or suspected

to possess the company’s property or capable of giving information concerning the company;

• Examine persons on oath (either orally or by written interrogatories) regarding the company’s property or information and require answers in written signed statements; and

• Require persons to produce books or papers in their custody or power relating to the company.

The court also has powers to apprehend any person summoned before it who fails to appear.

Applicable principlesLiquidators’ powers under s221 are necessarily extensive as they have little knowledge of companies when appointed. However, they can only request information and documents reasonably required for performing their role.

This limitation is intended to strike a balance between liquidators’ reasonable requirements for information and docu-ments and requests being unreasonable, unnecessary or oppressive (Chark Fung Securities Co. Ltd. v. Chan Kwong Hung (2001)).

The courts have developed principles to assist in this balancing exercise. The Court of Final Appeal summarized the principles in Akai Holdings as follows:• The liquidator must show that the

documents are reasonably required to enable him to carry out his functions,

not that they are necessary to enable him to do so;

• The case for making an order under the section in respect of a former officer is usually stronger than in respect of a stranger who owes no fiduciary duty to the company and who is not under a statutory duty to assist the liquidator;

• There is an element of oppression in requiring a party to provide information which exposes him to potential liability;

• An order for oral examination is likely to be more oppressive than an order to produce documents;

• It is oppressive to require a person suspected of wrongdoing to prove the case against himself under oath prior to proceedings being brought;

• An order is not necessarily oppressive because it is inconvenient for the party subject to it or causes him a lot of work or may make him vulnerable to future claims;

• In the light of the summary nature of the procedure and the need for expedition, the court cannot expect to indulge in fine judgments as to the precise width of the order which should be made; and

• The court must take care not to cut down the width of the order sought by the liquidator in a way which would risk making it ineffective.

Practical considerations for auditorsWhen s221 requests are received, audi-tors should locate and preserve relevant documents. Staff members involved in the audits should be identified as their work may need to be discussed.

Auditors should acknowledge liqui-

Section 221 requests – How should auditors respond?Patrick Perry and Michael Maguiness discuss practical

considerations for auditors in dealing with liquidators’ s221 requests for information and documents

40 May 2016

SourceLiquidators’ claims

dators’ requests and ask for copies of court orders for their appointment if not provided. Court orders may contain infor-mation on the circumstances and scope of their appointment which could assist when assessing requests. It is important to ensure that confidential client papers are not disclosed to someone without requisite authority.

Ignoring or refusing to comply with s221 requests could result in liquidators apply-ing for court orders that information and documents are produced. This may result in far greater cost implications for auditors, as well as exposing them to potential sanctions for breaching court orders if not complied with. It is often in auditors’ best interests to voluntarily comply with s221 requests insofar as reasonably possible. Further, there is greater flexibility on timing and scope of responses when information is provided voluntarily rather than under court order.

All requests should be assessed to determine the information and documents sought and the underlying reasons. Often liquidators’ requests are initially widely framed as they do not know what informa-tion and documents auditors possess. However, requests that are too wide and cover excessive amounts or irrelevant

documentation may be unreasonable, unnecessary or oppressive. Liquidators’ requests may contain ambiguous wording making it difficult to respond. In either case, liquidators should be asked to refine their requests.

Where auditors do not possess documents requested, they should inform liquidators and provide details of when and how documents previously held left their possession.

Auditors possess working paper files for client companies. Often they are reluctant to disclose these as they consider them to be their property rather than the company’s and have concerns they could be used in a claim against them. However, the courts clearly state working paper files come within the scope of s221. However, legally privileged material is not disclosable (e.g. advice from lawyers).

Liquidators often issue questions to auditors where working paper files are dis-closed. It is important to answer questions carefully and explain audit work thoroughly. Liquidators are entitled to rely on working papers and answers provided to issue audit negligence claims in the company’s name.

Unless questions are unreasonable, unnecessary or oppressive there are

limited grounds for objection. It is not advisable to simply ignore or refuse to answer questions as this may result in s221 applications for examination under oath, which are far more daunting.

Conclusion Responding to s221 requests is time con-suming and a burden on resources. How-ever, it is better to be proactive and engage with liquidators early rather than ignore or refuse to comply with requests.

Care needs to be taken when respond-ing. It is important to ensure only infor-mation and documents responsive to requests are provided and to limit unreasonable, unnecessary or potentially oppressive requests.

If auditors are in doubt whether or how to respond to s221 requests, they should consult their own internal risk management partner and/or seek legal advice.

Patrick Perry is

Partner and

Michael Maguiness

is Senior Associate at

the law firm Clyde &

Co. in Hong Kong

aplus

May 2016 41

With less than two years to implement the new HKFRS 9 Financial Instrument, the Hong Kong Institute of CPA’s Stand-ard Setting Department highlights a key aspect of the new impairment model under the standard, which applies to any entity with receivables (regardless of whether it is trade receivables from debtors or loan receivables from borrow-ers). HKFRS 9 is the equivalent of IFRS 9 (of the same title) issued by the Interna-tional Accounting Standards Board. An overview of implementation challenges faced by banks and other corporate enti-ties was reported in the May 2015 issue of A Plus.

Why we need a new impairment modelIFRS 9 is the IASB’s comprehensive response to the global financial crisis of the yesteryears, where accounting for loan losses was deemed as “too little, too late.” IASB Chairman Hans Hoogervorst commented that “the reforms introduced by IFRS 9 are much needed improve-ments to the reporting of financial instru-ments and are consistent with requests from the G20, the Financial Stability Board and others for a forward-looking approach to loan-loss provisioning. The new standard will enhance investor confidence in banks’ balance sheets and the financial system as a whole.”

The final version of HKFRS 9 was issued in September 2014 and is effective for annual periods beginning on or after 1 January 2018. HKFRS 9 supersedes HKAS 39 Financial Instruments: Recogni-tion and Measurement on its effective date.

An outline of HKFRS 9’s new impairment modelHKAS 39 contained many different impairment models associated with the classification categories. HKFRS 9

applies only one impairment model which is forward-looking and takes into account all reasonable and supportable informa-tion available with respect to expected credit losses. It also provides a richer set of information to users of the financial statements, by requiring specific quanti-tative and qualitative disclosures.

The diagrams on the next page illus-trate, at a high level, the three stages and the requirements of the new impairment model.

Assessing significant increases in credit risk: implementation considerationsThe IASB has established a transition resource group for the impairment of financial instruments. This group is a discussion forum aimed at providing support to stakeholders on issues aris-ing from the implementation of the new expected credit loss impairment model.

In this article, we summarize the group’s implementation considerations pertaining to the assessment of signifi-cant increases in credit risk, which is a key part of the new impairment model. Details of all implementation issues raised by stakeholders and discussed to date are available on the IASB website.

Entities are reminded that the assess-ment of changes in credit risk should always be based on a wide range of both internal and external indicators.

Internal indicators can include: (i) internal credit grading systems;

(ii) contractual terms and pricing of receivables and loans issued; and (iii) actual and expected performance of debtors and borrowers; and (iv) behavioural indicators.

External indicators can include: (i) credit ratings from independent credit rating agencies; and (ii) reasonable and supportable forecasts of future market conditions pertaining to your debtor or borrower.

How should internal credit grading systems identify significant increases in credit risk?Entities with an internal credit grading system should assess the appropriate-ness of its current systems as a means of identifying significant increases in credit risk. This will depend on an entity’s spe-cific facts and circumstances, the range of factors in determining individual credit grades, how the internal credit grading system operates and how it is related to the risk of a default occurring.

For example, an entity should review its credit grades frequently, ensure that reasonable and supportable informa-tion including forward-looking informa-tion is incorporated in the credit risk assessment of its receivables, and ensure that its credit risk assessment reflects the risk of default over the life of the receivables.

Entities with internal credit grading systems should assess and determine which movement within a range of inter-nal credit grades represent a significant increase in credit risk. For example, an entity may assess and determine that movements within internal credit grade 1 to grade 5 may not represent a signifi-cant increase in credit risk but move-ments from credit grades 1 through 5 to credit grades 6 or more represent a significant increase in credit risk.

Implementing HKFRS 9’s new impairment model

Source: Data from the Institute’s Quality Assurance Report 2015

42 May 2016

SourceTechnical update

Overview of the impairment requirements

What are the stages?

Stage 1

As soon as a financial instrument is originated or purchased, 12-month expected credit losses are recognized in profit or loss and a loss allowance is established.

This serves as a proxy for the initial expectations of credit losses.

For financial assets, interest revenue is calculated on the gross carrying amount (i.e. without adjustment for expected credit losses).

Stage 2

If the credit risk increases significantly and the resulting credit quality is not considered to be low credit risk, full lifetime expected credit losses are recognized.

Lifetime expected credit losses are only recognized if the credit risk increases significantly from when the entity originates or purchases the financial instrument.

The calculation of interest revenue on financial assets remains the same as for stage 1.

Stage 3

If the credit risk of a financial asset increases to the point that it is considered credit-impaired, interest revenue is calculated based on the amortized cost (i.e. the gross carrying amount adjusted for the loss allowance). Financial assets in this stage will generally be individually assessed.

Lifetime expected credit losses are still recognized on these financial assets.

What are 12-month expected credit losses? 12-month expected credit losses are the portion of lifetime expected credit losses that represent the expected credit losses resulting from default events on a financial instrument that are possible within the 12 months after the reporting date.

It is not the expected cash shortfalls over the next 12 months – instead, it is the effect of the entire credit loss on an asset weighted by the probability that this loss will occur in the next 12 months.

It is also not the credit losses on assets that are forecast to actually default in the next 12 months. If an entity can identify such assets or a portfolio of such assets that are expected to have increased significantly in credit risk, lifetime expected credit losses are recognized.

What are lifetime expected credit losses?

Lifetime expected credit losses are an expected present value measure of losses that arise if a borrower defaults on their obligation throughout the life of the financial instrument. They are the weighted average credit losses with the probability of default as the weight.

12-month expected credit losses are the portion of the lifetime expected credit losses associated with the possibility of a default in the next 12 months.

Because expected credit losses consider the amount and timing of payments, a credit loss (i.e. cash shortfall) arises even if the entity expects to be paid in full but later than when contractually due.

Source: IASB’s project summary of IFRS 9 issued in July 2014

Increase in credit risk since initial recognition

12-month expected

credit losses

Lifetime expected

credit losses

Lifetime expected

credit losses

Stage 1 Stage 2 Stage 3

Interest revenue

Effective interest on gross carrying amount

Effective interest on gross carrying amount

Effective interest on amortized

cost

Impairment recognition

aplus

May 2016 43

How can behavioural indicators be incorporated in an assessment of significant increases in credit risk?Behavioural indicators, such as when a customer has failed to make a pay-ment, are often lagging indicators of increases in credit risk and conse-quently, they should be considered in conjunction with other, more forward-looking information.

When considering the use of behavioural indicators, an entity should: (a) focus on identifying pre-delinquency behavioural indicators of increases in credit risk, for example increased utilization rates or increased cash drawings on specific products; (b) only use indicators that are relevant to the risk of default occurring; (c) establish a link between the behavi-oural indicators of credit risk and changes in the risk of default occurring since initial recognition; (d) be mindful that while behavioural indicators are often predictive of defaults in the short term, they are often less predictive of defaults in the longer term; and (e) consider whether the use of behavioural indicators is appropriate for the type of product being assessed. For example, if a loan has only back-ended payments, behavioural indicators based on timeliness of payment will not be appropriate.

Entities with multiple debtors and borrowers should be aware that information available at an individual financial instrument level may not incorporate forward-looking informa-tion as required by IFRS 9. Portfolio segmentation is important and entities should ensure that sub-portfolios are not defined too widely.

How should an ongoing review of significant increases in credit risk be performed?When an entity assesses whether a significant increase in credit risk has

occurred, it may conclude upfront that changes in the risk of a default occurring over the next 12 months is a reasonable approximation of changes in the lifetime risk of a default occurring. In these cases, entities are reminded that they should complete a robust analysis to support their conclusion.

Entities also need to be satisfied on an ongoing basis that their initial up-front conclusion continues to be reason-able. This requires an appropriate level of ongoing review.

One way of approaching an ongoing review would be as follows: (a) identify the key factors that would affect the appropriateness of using changes in the 12-month risk of a default occurring as an approximation of changes in the lifetime risk of default occurring; (b) monitor these factors on an ongoing basis as part of a qualitative review of circumstances; and (c) consider whether any changes in those factors indicate that changes in the 12-month risk of a default occurring are no longer an appropriate proxy for changes in a lifetime risk of default occurring.

Entities are reminded that they are required to disclose how they make their assessment of significant increases in credit risk, in accordance with IFRS 7 Financial Instruments: Disclosures.

Does the ability to recover cash flows from a financial guarantee contract impact the assessment of significant increases in credit risk?Cash flow recoveries from financial guarantee contracts should be excluded from the assessment of significant increases in credit risk. The assessment should be focused on the risk of the bor-rower defaulting.

However, information about the financial guarantee may be relevant to assessing changes in credit risk, to the extent that it affects the likelihood of the borrower defaulting on the instrument.

Is there a requirement to assess significant increases in credit risk for financial assets with a maturity of less than 12 months?An entity is required to assess whether there has been a significant increase in credit risk for all financial instruments, including those with a maturity of 12 months or less.

Entities are reminded that (a) the assessment of significant increases in credit risk is distinct from the measure-ment of expected credit losses. For example, a collateralized financial asset may have suffered a significant increase in credit risk, but owing to the value of the collateral there may not be an increase in the amount of expected credit losses even if measured on a lifetime rather than a 12-month basis; (b) assessing changes in credit risk would be consistent with normal credit risk management practices; and (c) the expected life of a financial instrument may change if it has suffered a significant increase in credit risk.

Entities are reminded that there are some operational simplifications to the impairment model for trade and lease receivables. Entities are encouraged to explore whether these simplifications could be applicable to their company.

Have you started implementing the new impairment model?Get in touch with the Institute's Stand-ard Setting Department (outreachhk@hkicpa.org.hk) if you have any questions or issues with implementing the new impairment model. Also, look out for more Institute seminars on implementing HKFRS 9, which will be released soon.

This article is

contributed by

the Institute’s

Standard Setting

Department

aplus

May 2016 45

C

M

Y

CM

MY

CY

CMY

K

1068_Comm_APlusAD_output.pdf 1 1/7/16 2:56 PM

Aplus Ad.indd 1 11/3/16 8:12 PM

Members’ handbook

Handbook updates no. 181 and 182The Auditing and Assurance Standards Committee has embarked on a project to update the relevant auditing and assurance pronouncements for HKSAE 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information, which is effective for assurance reports dated on or after 15 December 2015.

The following practice notes are updated for matters related to HKSAE 3000 (Revised) as well as other industry related matters.• PN 810.1 (Revised) Insurance Brokers

– Compliance with the Minimum Requirements specified by the Insur-ance Authority under Sections 69(2) and 70(2) of the Insurance Companies Ordinance and PN 810.2 (Revised) The Duties of the Auditor of an Insurer authorized under the Insurance Com-panies Ordinance in update no. 181; and

• PN 820 (Revised) The Audit of Licensed Corporations and Associated Entities of Intermediaries in update no. 182.

Financial reporting

Institute comments on IASB exposure draftThe Institute commented on the Interna-tional Accounting Standards Board’s ED/2015/9 Transfers of Investment Prop-erty (Proposed amendment to IAS 40) and welcomes the IASB’s efforts to address the diversity in practice regard-ing transfers of investment properties under construction to, or from, invento-ries when there is a change in use.

However, the Institute is concerned that the proposed amendments do not

go far enough in resolving the issue and recommends that the IASB: • Provides more guidance on how the

principle of paragraph 57 of IAS 40 should be applied from the perspec-tive of investment properties under construction by adding examples of evidence necessary to support a change in classification; and

• Clarifies that the current example provided in paragraph 57(d) of IAS 40 also applies to transfers of com-pleted investment properties.

In addition, the Institute considers that the proposed amendments should be applied consistently with the transition provision in paragraph 85B of IAS 40. That is, the proposed amendments should be applied prospectively and entities should be permitted to apply the proposed amendment to invest-ment properties under construction from any date before the effective date of the amendments, provided that the fair values of investment properties under construction were measured at those dates.

Ethics

Institute comments on IESBA exposure draftThe Institute commented on the International Ethics Standards Board for Accountants’ exposure draft on Pro-posed Revisions Pertaining to Safeguards in the Code-Phase 1 and welcomes the IESBA’s initiative to improve the clarity, appropriateness and effective-ness of the safeguards in the code. The Institute supports the proposed amendments in the exposure draft, which provide enhanced clarity and robust application material relating to the conceptual framework.

Professional accountants in business

HKEx revamps ESG webpageThe Hong Kong stock exchange has revamped its environmental, social and governance webpage to give listed issu-ers updated guidance on ESG reporting.

As previously announced by HKEx, the amendments to the ESG reporting guide (Appendix 27 to the Main Board Listing Rules and Appendix 20 to the Growth Enterprise Market Listing Rules) will come into effect in two phases:• The rule amendments and the

upgrade of the general disclosures in the guide from recommended to “comply or explain,” as well as the revised recommended disclosures, have come into effect for issuers’ financial years commencing on or after 1 January 2016; and

• The upgrade of the key performance indicators in the “environmental” subject area of the guide from recom-mended to “comply or explain” will come into effect for issuers’ financial years commencing on or after 1 January 2017.

The webpage sets out practical steps, tools and reporting guidance aimed at helping issuers to start ESG reporting under the revised guide.

MMT proceedings against late disclosure of inside information The Securities and Futures Commission has recently commenced two proceed-ings in the Market Misconduct Tribunal against listed companies and their senior executives for failing to disclose price sensitive information as soon as reasonably practicable, as required under part XIVA of the Securities and Futures Ordinance.

The latest standards and technical developments

TechWatch 162

46 May 2016

SourceTechWatch

Corporate finance 

HKEx publishes Listing Committee Report 2015HKEx has published its Listing Com-mittee Report 2015, a review of the committee’s work in upholding market quality last year and an overview of the committee’s policy agenda for 2016 and beyond. The Listing Committee, which consists of 27 independent members and HKEx chief executive as an ex-officio member, oversees the Listing Department, provides policy advice to HKEx on listing matters, takes decisions of material significance for listing appli-cants, listed issuers and the individuals concerned, and acts as a review body.

In 2015, the committee considered 112 listing applications. The commit-tee also considered it necessary to adopt a more robust delisting policy for long suspended companies. Hav-ing noted that the current GEM regime has been in operation for around seven years, and taking into account the new sponsor regime which came into effect in late 2013, a review of GEM has also been included in the committee’s policy agenda for 2016 and beyond.

Taxation

Annual meeting with the Inland Revenue DepartmentThe annual meeting between repre-sentatives of the Institute’s Taxation Faculty Executive Committee and the

Inland Revenue Department took place on 11 March. The items discussed at the meeting include the following:• Filing deadlines – The IRD con-

firmed the due dates for lodging profits tax returns for the year of assessment 2015-16. These are highlighted for members’ attention. (see table above).

• Font size for schedules support-ing the return – The IRD expressed its appreciation for support from members of the Institute in observ-ing its request to comply with the preferred format for supporting documents filed with the profits tax returns. The IRD again appealed to members for assistance in adopting a reasonable font size (size 11 or above) in those documents.

Announcements by the Inland Revenue DepartmentMembers may wish to be aware of the following matters:• The gazette about the Inland Rev-

enue (Amendment) (No.2) Bill 2016, seeking to implement the conces-sionary revenue measures proposed in the 2016-17 Budget;

• A circular letter to tax representa-tives on the Block Extension scheme for lodgement of 2015-16 tax returns;

• A reminder to pay the second install-ments of tax for the year of assess-ment 2014-15;

• The issues of profits tax returns, prop-erty tax returns and employer’s returns

for the year of assessment 2015-16;• A LegCo question on Special Stamp

Duty, Buyer’s Stamp Duty and Dou-bled Ad Valorem Stamp Duty; and

• Tax representatives’ corner providing one-stop relevant resources online

Legislation and other initiatives

Waiver of business registration fees for companies The business registration fees payable in respect of the following will be reduced by HK$2,000: 1. An application for company incor-

poration and business registration made in the period from 1 April 2016 to 31 March 2017; and

2. A non-Hong Kong company that commences business between 1 April 2016 and 31 March 2017.

Applicants are still required to pay the levies for the Protection of Wages on Insolvency Fund. Please refer to the Inland Revenue Department website and the business registration fee and levy table for details.

Please refer to the

full version of

TechWatch 162,

available as a PDF on

the Institute’s website:

www.hkicpa.org.hk

Accounting date Extended due date Further extended due date (if opting for e-filing)

“N” Code 3 May 2016(no extension)

17 May 2016

“D” Code 15 August 2016 29 August 2016

“M” Code 15 November 2016 29 November 2016

“M” Code(current year loss cases)

1 February 2017 1 February 2017(same as paper returns)

Due dates for lodging profits tax returns

aplus

May 2016 47

This year has seen accounting firms delving deeper into the world of artificial intelligence. KPMG announced plans to apply IBM’s cognitive computing technol-ogy to its auditing services, and Deloitte ramped up deployment of an AI contract analysis tool. At the same time, forensic accountants are being increasingly relied on to detect fraud through high-level data analysis skills. The question many are asking is how far this march of technology will go across the profession? Will CPAs one day find robots sitting on their chairs at work?

The book The Future of the Profes-sions – How Technology will Transform the Work of Human Experts examines the professions – mainly health, divin-ity, law, journalism, management, tax and accounting, and architecture – and the likely effects technology will have in these areas in the future.

Following thorough research and long

talks with a wide range of professionals, the authors – father-son duo Richard Suss-kind and Daniel Susskind – claim that “we are at the brink of a period of fundamental and irreversible change in the way that the expertise of these specialists is made available in society... in the long run we will neither need nor want professionals to work in the way that they did in the 20th century and before.”

Evidence, such as the fact that there are more monthly unique visits to the health websites of WebMD than to all the doctors in the United States, are considered by the authors as early indicators of a transfor-mation happening within the professions, which they say originally existed to help solve problems that non-professionals are unable to handle due to lack of expertise and experience.

That was the central role of the professions in what the authors call a “print-based industrial

society.” However, in a “technology-based Internet society,” which the world is today, the authors predict that “increasingly capable machines... will take on many of the tasks that have been the historic pre-serve of the professions.” This, the Suss-kinds argue, will ultimately lead to the decline of the traditional professions as we know them, and their gradual replacement by feasible alternatives. To accountant readers, this idea may seem threatening, but the authors anticipate that a range of new opportunities will emerge.

The book is organized in three parts. In the first, the authors provide a solid foundation of theories and everyday views about the professions today, exploring in great depth their purpose, common features, strengths and weaknesses. They argue that historically professionals have earned status and respect in society under the so-called “Grand Bargain,” a type of social contract in which people trust in

Book review

After hours Book review Life and everything A life in the day

Authors: Richard Susskind and Daniel Susskind Publisher: Oxford University PressTitle: The Future of the Professions – How Technology will Transform the Work of Human Experts

Robots vs.

Accountants

48 May 2016

aplus

them to be the “gatekeepers” to special-ized knowledge, and to help them in the correct way. It’s here where the authors highlight what they think are the bargain’s many flaws, including the criticism that relatively few people can afford these services, and that the professions are unacceptably inscrutable.

The second part of the book is described as its theoretical heart. It covers anticipated technological developments, and goes through shifts seen in the way professionals store and communicate information and the impact this has on how expertise is shared out. An example used by the authors is PwC’s audit prac-tice, which has moved away from taking small representative samples of data and is now trying to handle 100 percent of the data for a client using an IT software called Halo.

This leads the authors to challenge the claim by traditional auditors that run-ning increasingly powerful algorithms across data can never really replace the exercise of judgment, for example, as to whether clients are appropriately handling provisions. “The market leaders are now looking very seriously at how AI can also help here,” write the Susskinds.

The third part of the book discusses what the authors believe are the most important implications and anxieties for the professions about the changes pro-posed. In some cases, they note, profes-sionals argue that the thinking in the book applies to all professions – just not their own, while many express real worries about the potential of technology displac-ing humans and enabling non-experts to do what they do. They conclude by asking and answering an ethical question: what future should we want?

Whether or not readers agree with the book’s core arguments, it’s hard to ignore that radical changes are coursing through the lives of professionals, and that includes CPAs.

“What have I got myself into?” might be the reaction of some accountants at the beginning of their career, after they have read the first few pages of the book The Future of the Professions.

Co-author of the book, Daniel Susskind, reassures them that the main message that unravels is not one that reflects all doom and gloom, but unrelenting change. “If you go into the accounting profession, wanting to be the sort of accountant that your parents or grandparents were, you’re going to be disappointed. If that’s your benchmark, it will look gloomy because the work of accountants is changing significantly,” says Susskind, an economics lecturer at Balliol College, Oxford. He is currently looking at how technology affects the labour market generally.

“On the other hand, if you go into the accounting profession, wanting to solve the problems that tradition-ally accountants have solved and you want to do it in a way that is most efficient, effective and more affordable for your clients, then I think that is a very optimistic future.”

He urges young CPAs to think carefully about the companies they apply to. “Join an institution that is flexible about what it means to be an accountant.”

The idea for the book stems from the deep fascination of his dad and co-author Richard Susskind about how technology affects the legal profession, having studied the question for almost 40 years. “What he found, particu-larly in the last five to 10 years talking predominantly to lawyers, was that the stray doctor, the stray teacher and stray accountant would come up and say: ‘What you’re talking about applies in our

professions too,’” Susskind says. At that time, Daniel Susskind was

working for the policy unit of the British Prime Minister’s office, focusing on education policy, health policy and tax policy. “It was clear from this work that significant change was in the air.”

When questioned on the pace of change, the Susskinds are careful not to give a particular time scale. “It depends upon the extent the exist-ing professions embrace the changes we describe. It also depends upon the people in the institutions outside of the professions and their eagerness to solve the problems – These things are not in our control.”

This, he stresses, is important for places like Hong Kong and China to bear in mind as in some countries there is

less conservatism in the professions, partly because they have a shorter history. “Profes-sions in Britain go back 600-700 years... without that kind of historical legacy there’s more flexibility and more open-mindedness about how things might be done differently.”

As well as research, the book is based on a set of 100 interviews with professionals. Even now, they con-tinue to discuss their

ideas with the professions, including the accounting community, which Susskind sees as going in the right direction to effectively tackle future trends. “I have been impressed by how the accounting bodies and associa-tions that I’ve spoken to realize that this is an exciting opportunity for them,” he says. “They see that they have a leadership role in trying to make sure that their accountants are able to respond to these changes.”

Author interview:Daniel Susskind

May 2016 49

Life and everythingAs recommended by Institute members

Cosy dining spots for family gatherings by Michael Mak, Deputy General Manager at PizzaExpress (Hong Kong)

PizzaExpress, Ocean Terminal PizzaExpress is widely accepted as a family-friendly restaurant. The Ocean Terminal branch features a ceiling height glass façade allowing guests to enjoy their meal with stunning views of Victoria Harbour, among other things. When there is an ocean liner parks right outside the pier of the restaurant, guests are usually surprised by it’s giant size. The restaurant’s splendid night view earned it a high rating on multiple cuisine reports.

Hong Kong Lao Shang Hai Restaurant This restaurant’s fit out is traditional and pleasant, and the food quality is absolutely guaranteed. The dishes are authentic and delicious. Signature dishes include smoke eggs, braised leg of pork, fried minced port pow and hairy crab (seasonal) are all household traditional Shanghaiese dishes that are highly recommended. This restau-rant is well-suited for family gatherings as members from all generations would find it enjoyable.

Imasa, Japanese restaurant The environment of Imasa is simple, modern and it fits comfortably within the Peninsula hotel. The service is always warm and friendly, following the “Peninsula” five star standard. Imasa is most famous for its Japanese semi-buffet available at the week-end. Deluxe sashimi, Hokkaido crab legs, Hida beef sushi, scallops, sweet shrimps and uni are all delicious dishes included in the buffet. It is always nice finishing off the meal with the fresh yuzu sorbet.

Members always ask me about what they could do at home to prepare for long distance run-ning workouts. Wall sits are excellent for building strength and endurance in the lower body muscles and all you need is a blank wall or a door with reliable lock.

Here’s how to do a wall sit:1. Stand about two feet away

from a wall with your back against the wall.

2. Slide your back down the wall until your hips and knees bend at a 90 degrees angle.

3. Keep the shoulders, upper back and the back of the head against the wall.

4. Make sure both feet are flat on the ground with the weight evenly distributed.

5. Depending on your strength, hold for 20 seconds to a min-ute. Rest for half a minute in between and do three sets of repetitions.

If it is too painful for you to be at a 90 degree angle, start with your back higher up and

lower once you have had more practice.If you want more of a challenge, hold a dumb-

bell in each hand down by your side or place a ball between the knees and gently squeeze to work out your inner thighs.

The perfect exercise for runners to increase speed and build endurance by Juni Ngai, Director of ICAEW Hong Kong and Convenor of the Institute's Athletics Interest Group

SaveFitness

50 May 2016

aplus

Accountants are typically not seen as the most style conscious professionals, but I believe putting an effort on what you wear at work can have a positive impact on how you feel and how you take on the daily challenging accounting tasks.

I would describe my style as understated but sophisticated, so I normally go for labels like Swedish brand ACNE STUIDOS, French brand A.P.C for smart casual looks

and Dior Homme for more professional looks. I mix and match all the time because of my limited wardrobe.

Hot items for this season would be a denim shirt and white sneakers from ACNE STUDIOS, raw denim skinny jeans from A.P.C and a signature patched flower suit jacket from Dior Homme. You can always have fun playing with all these basic items and express your personal style at work!

Modern, cutting-edge fashion labels for men by Matthew Leung, Associate Finance Director at I.T. Apparels

SaveFashion

As an executive with hectic schedules, I had been searching for a suitable sport which could allow me not only to unwind away from the daily work grind and relax, but also enhance physical fitness. I had developed a habit of running for a while and found it with many benefits. In addition to running, I have developed an interest in sailing since one and half years ago. I started off by sailing “big boats” which are of 30 to 40 feet long and have participated in sailing races like Jeanneau Hong Kong Macau Mid Summer Race, China Cup and Around the Island Race. I have also joined the Institute’s Sailing Interest Group and its training courses for dinghies.

There is a hook to this sport. When you have engaged in it, you always try to find

time to practise or race. My suggested sailing courses for newbies:• Dinghies – Take courses for levels 1

and 2 of the Hong Kong Sailing Federa-tion Dinghy Scheme (HKSF L1 and L2)at water sport centres of the Leisure and Cultural Services Department. The centres at Wong Shek and Tai Mei Tuk are very good and inexpensive.

• J80 keelboat – Join courses offered by the yacht clubs, for example, the Royal Hong Kong Yacht Club, and the Aberdeen Boat Club to learn how to sail the J80, a 26-feet keelboat. Form a group with three to four persons for learning, practise teamwork and enjoy sailing without the fear of tipping over, like with the dinghies. The usual prerequisite is HKSF L1 and L2.

Training programmes for serious sailors by Andy S. C. Lee, Vice-President (Administration) and Secretary of Hong Kong Baptist University and a past president of the Institute

Sailing

1. Dior Homme signature patched flower suit jacket

2. A.P.C raw denim skinny jeans3. ACNE STUDIOS denim shirt4. ACNE STUIDOS white sneakers

4

1

2

Andy sailing the Topper, a dinghy

3

May 2016 51

Hong Kong’s humorist talks to an accountant with an insatiable appetite for ale and life

52 May 2016

A life in the day…. with Nury Vittachi

P icture a young man from Hong Kong having a beer with his brother at a bar in

the United States.Like pretty much all Hong Kong

males, David Gallie had grown up with cans of mass-produced super-market beer. So he thought he’d try something different. He lifted his glass to his mouth and – POW! Amazing. Wow, what was this stuff?

The brothers had discovered hand-brewed craft beer. It was rich, dense, complex and delicious – totally unlike what they were used to.

For a moment, David and his brother Daniel indulged themselves in a fantasy. Instead of working, wouldn’t it be amazing to just brew this in Hong Kong? Just imagine the parties!

But beer was beer and life was life. They decided that maybe when they retired from their “proper” jobs or had mid-life crises they could abandon their offices and start their own brewery!

But for now, it was time to be serious.

The Gallie brothers had been brought up by their parents, an Eng-lish father and a mixed-background mother, to take a smart, economi-cally secure route in life. Join a pro-fession. Be an entrepreneur. Do at least three years in finance. Sort out a career path before you are 30.

While Daniel took a different route, going into information technology, David followed his parents’ advice. He studied accounting and managed to get into one of the then big five accounting firms.

Accounting was an interesting job, but he eventually got a feeling that he had to take things further.

He found himself staring out of the window at the birds of prey – Chinese black kites – that were com-mon in Hong Kong. Destiny wanted him elsewhere. But where?

He left audit after three and half years. One of his last PwC projects was helping UBS with anti-money laundering work, and they offered him a role doing the same work.

“I loved it,” David said. “Most people dislike their auditor, but some people actually like their com-pliance officer – or pretend to!”

He got to dig deeply into back-grounds of new and existing clients, see how they made their fortunes, investigate transactions – and report suspicious ones to the police.

The industry was growing, and it would have been a great career, but he decided that wasn’t his ultimate job either.

After three and half years, he resigned. David thought about re-training as a lawyer, but found it hard to slog through the boring books. At the same time, his brother Daniel left his IT job.

That’s when they had a wild idea – they decided to move forwards by looking back. Their years-old fantasy of starting their own craft beer brewery in Hong Kong beckoned.

David was 29-years-old at the time, so he could still claim to be following his parents’ guidelines by

becoming an entrepreneur before starting his third decade.

At their new office in Wong Chuk Hang, he saw Chinese black kites circling in the air – and took it as a sign.

The Black Kite Brewery was born.

Today, Dave and Dan Gallie’s critically acclaimed firm makes six popular core beers, from a light, golden ale which is similar to a lager, to a dark, chocolate porter.

But they also work with offbeat flavours as “specials.” “Our latest one was made with smoked malt, and tasted like bacon,” David said. “It went really well with breakfast – can I say that?!”

Life is fun. He and his Australian wife have a one-year-old baby, so he gets up early to make sure he can get his work done and get home in time to play with his son.

“After seven years of working in the financial service industry, it’s an amazing feeling to have a tangible – and delicious – product at the end of a working day,” he says.

And he still enjoys relaxing with a tasty glass of craft beer. “I call it ‘quality control,’” he laughed.

Nury Vittachi is a bestselling author,

columnist, lecturer

and TV host. He wrote

three storybooks for

the Institute, May

Moon and the Secrets

of the CPAs, May Moon

Rescues the World

Economy and May

Moon’s Book

of Choices

Brewing up a career

He lifted his glass to his mouth and – POW!