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FTSE 100 choose only Big Four audit firms A British Competition Commission inquiry into the audit market of the United Kingdom and Europe has found that between 2001 and 2011, 100 percent of FTSE 100 companies used one of the Big Four and only switched within the Big Four instead of choosing mid-tier firms such as BDO or Grant Thornton. Of the FTSE 250, 80 percent switched within the Big Four when changing firms and only 3 percent tried other firms. FSA selects Grant Thornton to report on HBOS failure The Financial Services Authority of the United Kingdom has appointed Grant Thornton to report on the failure of HBOS after the Big Four ruled themselves out due to conflicts of interest. The report will look into the management and culture of HBOS for a treasury select committee. The minutes from the FSA board state that Grant Thornton was chosen for “the seniority of the team [and] the mix of forensic and regulatory skills.” Former SEC official named to replace Pacter at IASB Mary Tokar, a former official with the Securities and Exchange Commission in the United States, has been appointed to the International Accounting Standards Board from January 2013. Tokar will replace former Deloitte Hong Kong director Paul Pacter, whose term expires at the end of this year. Tokar was most recently global leader for KPMG’s IFRS group, leading the Big Four firm’s dialogue with the global accounting regulatory and standard-setting communities. Rice giant files suit after Muddy Waters criticism The world’s second-largest rice trader, Singapore-based Olam International, has filed a legal suit against investment firm Muddy Waters after its founder, Carson Block questioned the commodity trader’s accounting methods. The legal action was initiated in the High Court of Singapore following Block’s statements against the company at a conference in London on 19 November. Olam said Block’s comments were malicious falsehoods. 8 December 2012 NEWS INTERNATIONAL HP accuses British acquisition of deception over profitability Computer giant takes US$8.8 billion charge Hewlett-Packard has accused Autonomy, the British software company it acquired last year for US$11.1 billion, of using misleading accounting practices to make it appear more profitable than it actually was. HP, based in the United States, claims that Autonomy had “inflated” its value prior to the takeover as part of a wilful effort to mislead HP and shareholders. Meg Whitman, HP’s chief executive, said a senior Autonomy executive came forward to reveal worrying practices. “We launched... a forensic examination led by PricewaterhouseCoopers and uncovered a whole host of very concerning accounting improprieties and misrepresentations,” she told media. KPMG was brought in by HP to conduct due diligence work prior to the acquisition. Whitman said that HP had also relied on Deloitte, the British company’s long-term auditor. As a result of the PwC investigation, HP now believes Autonomy was substantially overvalued due to the misstatement of its financial performance including revenue, core growth rate and gross margins, Accountancy Age reported. The alleged accounting scandal has already cost HP more than US$8.8 billion in charges. As a result of this, and a fall in the company’s share value and low returns from the merger, HP recorded a net loss of US$6.85 billion for the quarter ending 31 October. Mike Lynch, Autonomy’s former chief executive, denied HP’s allegations. “They [the allegations] are completely and utterly wrong and we reject them completely,” The Daily Telegraph quoted him as saying. HP has referred the case to the U.S. Securities and Exchange Commission and the United Kingdom’s Serious Fraud Office. Former Stanford executives found guilty in US$7 billion Ponzi scheme Two former accounting executives, Gilbert Lopez and Mark Kuhrt, have been convicted of helping fraudster Allen Stanford cover up a Ponzi scheme that cost investors US$7 billion. Both Lopez, Stanford International Bank’s former chief accounting officer, and Kuhrt, Stanford’s global controller, were found guilty by a Texas jury of nine out of 10 wire fraud counts and one count of conspiracy to commit wire fraud after 16 hours of deliberation. United States federal prosecutor Jason Varnado said during the closing arguments that Lopez and Kuhrt “knew the bank was doing one thing and promising investors another, and they helped hide it. The only explanation for that is a criminal explanation.” The two face sentences of more than 20 years. Lopez and Kuhrt were the last former executives at the bank to face criminal trials for the fraud.
NEWS GREATER CHINA eBay to embark on partnership with Shenzhen online retail site Heavy use of English site sparks renewed push into Mainland The world’s biggest online auction website, eBay, has agreed to team up with a Chinese company in a bid to expand its presence in the Mainland and tap into its booming Internet market. The firm will collaborate with Xiu.com, a Shenzhen-based luxury online retailer and launch a localized shopping portal named eBay Style. The site already has up to 5,000 brands in apparel, handbags and shoes on board. Due to the growing popularity of online shopping, China has become a key market for e-commerce with Internet firms. According to China’s Ministry of Commerce, the local e-commerce market was worth more than US$120 billion in 2011, a 53.7 percent increase from 2010. Melanie Tan, vice president of eBay, told the media that there Baidu, China’s most popular search engine, in its debut United States dollar offering last month, sold US$1.5 billion worth of bonds. Selling in two parts, the Baidu bond deal was priced at a spread of 160 basis points over treasuries for the five-year and 185 basis points over treasuries for the 10year, according to a term sheet seen by the Financial Times. This was about 100 basis points more expensive than what Google achieved in a debt sale 10 December 2012 John Donahoe has been “a 40 percent year-onyear increase of goods bought by Chinese consumers navigating eBay.com in English.” “We believe that in the future, Chinese consumers will use eBay as a passport to global fashion styles, especially for leading women’s brands and accessories, and menswear,” she added. last year, yet 100 basis points cheaper than that paid by Tencent Holdings, a Chinese Internet company, when it last raised dollar debt, the FT reported. Also according to the paper, the deal was mainly marketed to high-grade debt investors rather than to emerging market investors in order to raise the money at a lower cost than emerging market companies have been able to achieve previously. The Internet giant said it planned to use some of the In welcoming the new partnership, George Ji, CEO of Xiu.com, identified eBay, with its global access, as “an ideal partner” for his firm. “Through our curation efforts, we also hope to introduce a new, more inspiring buying experience to Chinese consumers,” he said. The chief executive officer of eBay, John Donahoe, had ordered a renewed push into China after his predecessor, Meg Whitman, had difficulty gaining traction in Asia a decade ago, Businessweek reported recently. Ebay first launched in China in 2002, but was undermined the year after by a more innovative local competitor in Taobao. com. Taobao outdid eBay in China in terms of its payment systems, advertising network and customer service. money to pay down existing debt and as a “war chest” for strategic purposes, including overseas mergers and acquisitions. “Our operations outside of China, though very modest at present, are growing,” Kaiser Kuo, director of international communications at Baidu, told Bloomberg. “Our bond is really about having a ready war chest that gives us flexibility for a range of future strategic uses. While we have no specific [merger Banker takes up new job as anti-graft chief Wang Qishan, an experienced trade negotiator and former banker, has been appointed to lead the Communist Party’s Central Commission for Discipline Inspection, the organization in charge of rooting out corruption among officials. He was also named a member of the new seven-man Politburo Standing Committee, headed by new party chief Xi Jinping, that will guide China in the coming five years. Observers expect Wang, former president of China Construction Bank, to face many challenges. Wang Yukai of the Chinese Academy of Governance told the South China Morning Post: “He has a strong personality... It would be very tough for someone with such characteristics in the party disciplinary job.” Baidu sells US$1.5 billion in bonds to fund M&A “war chest” AFP and acquisition] deals pending currently, we will be attuned to opportunities,” Kuo added. J.P. Morgan and Goldman Sachs handled the deal with ANZ, Bank of China Hong Kong, Deutsche Bank and Morgan Stanley. Baidu accounted for 78.6 percent of China’s search engine market by revenue in the third quarter, according to Analysys International, a researcher focused on the Chinese Internet market.
Page 1 and 2: ISSUE 12 VOLUME 8 DECEMBER 2012 Acc
Page 3 and 4: REGULARS 01 President’s message 0
Page 5 and 6: Two lay members named to Council Th
Page 7: Talks over European Union budget en
Page 11 and 12: CCB chairman defends Mainland bank
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Page 19 and 20: GUNS Roy Leung Partner, audit and a
Page 21 and 22: PHOTO: ALAN CHEUNG AND SUNNY YU wat
Page 23 and 24: Alpha Tsang Senior manager, assuran
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Page 35 and 36: CPAs make a difference Giving back
Page 37 and 38: CPAs make a difference Patrick Lo C
Page 39 and 40: CPAs make a difference Richard Chen
Page 41 and 42: Fair value How your property valuat
Page 43 and 44: 121 TechWatch The latest standards
Page 45 and 46: Tech Q&A The Institute has issued a
Page 47 and 48: Events Your guide to courses, works
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