Mentoring for - Hong Kong Institute of Certified Public Accountants

ISSUE 3 VOLUME 9 MARCH 2013
HK$70.00
PLUS
• Making boardrooms more diverse
• Top tips for better networking
• Sparkle Roll Group CFO Henry Mok
Mentoring for
success
How firms foster talent by pairing
promising young accountants
with their older, sage colleagues

“ That your Institute
was chosen to host
such important
global events once
again shows the
strategic position
of Hong Kong in the
world of accounting.”
President’s message
Meeting our
members’ needs
Dear members,
A
s part of a membership engagement
initiative to create a platform
for direct interactive communication
with our members, the Council
has planned to host a series of monthly members’
forums in the coming months.
The purpose is to listen to your views, understand
your needs and at the same time explain
the strategic goals of the sixth long-range plan
and keep you updated on the activities of the
Institute.
The forums will be free of charge and carry
one CPD hour for your participation. The leadership
team, together with members of the Council,
will attend and meet with you.
We have identified topics to coincide with our
long-range plan, including audit regulation and
professional liability reform, training and career
development support, communications and how
accountants can make a difference to society.
One of our ongoing contributions to society is
our annual submission on the government’s budget.
The financial secretary pays close attention
to our views and, as your president, I was invited
to the briefing on the day he gave his budget
speech last month.
The budget is also a great opportunity for media
exposure, as journalists are eager to receive
comments from our taxation faculty executive
committee representatives. This recognition is the
accumulation of many years of our efforts with
hours of meetings, discussions, research and engagement
with members and stakeholders.
Our submissions go beyond Hong Kong. We
recently submitted two papers to the International
Ethics Standards Board for Accountants
about its exposure drafts on responding to suspected
illegal acts and professional development
for audit engagement partners. We raised
critical concerns about the impact of the proposals
on the profession. Please go to the Institute
website to see the full text.
Further, on the international front, we have
given support to the creation of the Accounting
Standards Advisory Forum under the aegis of
the IFRS Foundation. The forum aims to secure
a more streamlined dialogue between the International
Accounting Standards Board and the
global accounting standard-setting community.
It will be chaired by the IASB and has 12 other
members, all of which are national accounting
standard setters and regional bodies associated
with accounting standard setting. With our experience
and stature, the Institute will actively
participate in this new group to ensure Hong
Kong’s views are reflected.
Following the highly acclaimed IFRS Foundation
Trustees meeting hosted by the Institute
in January, heavyweights from business, government
and the profession in Hong Kong and
overseas will gather in June for the seventh IFRS
regional policy forum. That your Institute was
chosen to host such important global events
once again shows the strategic position of Hong
Kong in the world of accounting.
In its 40 years of history, the Institute has continued
to achieve great things and will excel in the
years ahead with your support and participation.
Susanna Chiu
President
March 2013 1

REGULARS
REGULARS
01 President’s message
04 Institute news
06 International news
10 Greater China news
14 Balancing the boards
Hong Kong company boards should be less homogenous, says the
stock exchange. George W. Russell looks at diversity initiatives
20 Meet the Council
The second part of the Institute’s Council series features governmentappointed
lay members Edith Shih and Andrew Fung
22 Virtual CFOs for the real world
Not every company can afford a full-time chief financial officer.
George W. Russell reports on rising demand for virtual CFOs
26 Passing the torch
Behind many CPA success stories is an older, wiser peer. Jemelyn
Yadao reports on mentorship programmes
32 Success ingredient
George W. Russell interviews Sparkle Roll Group CFO Henry Mok
about choosing the right luxury brands for China
38 Climbing out of a social rut
Networking is a vital tool for accountants who want to expand
their professional and social contacts, as Robin Lynam reports
SOURCE
44 Hong Kong tax
Tracy Ho and Patrick Kwong explain IP deduction claims
46 TechWatch 124
The latest standards and technical developments
48 Tech Q&A
Your questions about standards answered
54 People on the move
The latest professional appointments from around the region
55 Events
A guide to forthcoming courses, workshops and member activities
LIFESTYLE
56 Business travel
Honnus Cheung visits the ancient architecture of Angkor
58 After hours
Aloysius Tse on Sherry; Wendy Hu on colourful watches
60 Let’s get fiscal
Nury Vittachi susses out superstitions
2 March 2013
ISSUE 03 VOLUME 09 MARCH 2013
FEATURES
CONTENTS
28 14

Your chop Your Logo
ILLUSTRATION: HARRY HARRISON
About our name: A 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.
President: Susanna Chiu
Email: president@hkicpa.org.hk
Vice Presidents: Clement Chan, Mabel Chan
Chief Executive and Registrar: Raphael Ding
Email: ce@hkicpa.org.hk
Deputy Director of Communications: Stella To
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© Hong Kong Institute of Certified Public Accountants
March 2013. Print run: 6,200 copies
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CPAs race for a
reason at marathon
A thousand CPA runners and their families and
friends took part in the Standard Chartered
Marathon last month. The runners of the 10 km
race included the Institute’s president, Susanna
Chiu, vice president, Clement Chan, and immediate
past president, Keith Pogson. The Institute
received the “most supportive group” award
from the marathon organizers for the fourth
consecutive year. All participants are invited to
the post-marathon drinks where trophies will be
presented to outstanding runners. Details of the
gathering to come.
Members to take a closer
look at LegCo Complex
The Institute and the Office of the Hon. Kenneth
Leung are organizing a guided tour of the Legislative
Council Complex for members. The tour
will take place on 23 March. Members who take
part in the tour, which will be guided by Kenneth
Leung, will be able to understand more about the
LegCo’s work, the historical development of the
LegCo and the design concept of the building. The
LegCo Complex is the first purpose-built building
to hold the legislature since September 2011.
Members interested in taking part are advised to
enrol by 15 March.
Obituaries
The Institute notes with regret the passing of
Cheung Yam-tong, Tony, Lam Siu-ngan, Lau Sukyee,
Wong Ngok-chung, Alex and Wong Ting-kui.
4 March 2013
NEWS
THE INSTITUTE
Budget a big help for families,
falls short on long-term vision
Tax panel concerned over city’s competitiveness
The first budget proposal of the administration of chief executive Leung Chun-ying
shows some progress in the right direction, according to the Hong Kong Institute of
CPAs, which believes that more can be done to boost the city’s competitiveness.
“We support the budget measures that are in line with Institute’s recommendations,
such as the increased child allowance from HK$63,000 to HK$70,000,
the rates waiver and the electricity subsidy,” says Florence Chan, chair of the Institute
taxation faculty executive committee and Greater China tax leader at Ernst &
Young. Targeted measures are more effective than indiscriminate cash handouts,
Chan added.
While the budget’s focus on families deserves to be lauded, the city’s overall
business competitiveness deserves more attention, the Institute concluded.
The Institute favoured implementation of its recommendations for a tax waiver
on assessable profits up to HK$500,000, an extension of tax concessions on
intellectual property and tax concessions for regional headquarters and offices.
“These measures would have helped increase Hong Kong’s international
competitiveness,” said Wilson Cheng, convenor of the Institute budget proposal
subcommittee and a tax partner at E&Y. “We would also have liked to see more
concrete measures for professional services to support Hong Kong’s role as an international
financial centre.”
Former registrar and secretarygeneral
passes away
Lee Kai-fat, the Institute’s past registrar and secretary-general who helped oversee
the transformation of the Hong Kong Society of Accountants into the Institute,
passed away peacefully in Hong Kong last month.
During his tenure between August 2000 and De cember 2003, K.F. fostered
mutual recognition between Hong Kong CPA qualification with those of first-tier
international account ing institutes.
K.F. presided over the historic 16th World Congress of Accountants, held in
Hong Kong in 2002 with more than 5,000 delegates attending and featuring the
then-Chinese Premier Zhu Rongji as officiating guest.
Under K.F., the Institute consolidated and strengthened its professional ties
with the Mainland authori ties and counterparts.
“We are deeply saddened by K.F.’s passing away. We send our heartfelt
condolences to his family and join them in mourning this great loss. K.F. was
instrumental in raising the Institute’s global profile and members of the profession
are grateful for his contribution,” says Susanna Chiu, the Institute’s president.
Before joining the Institute, Lee served in the administrative service of the
Hong Kong government for more than 20 years until 1999.
A funeral service will be held on 17 March at the Universal Funeral Parlour at
Hung Hom.

NEWS
INTERNATIONAL
Japan’s economy shrinks for third
straight quarter, defying forecasts
BoJ, consumers more positive despite disappointing data
Japan’s economy contracted for
the third successive quarter in
the last three months of 2012,
as the economy defied analysts’
expectations for a mild rebound.
Government data showed
that Japan’s gross domestic
product fell 0.1 percent in the
October-December quarter,
equivalent to an annualized drop
of 0.4 percent. Overall growth
in 2012 was 1.9 percent, after a
0.6 percent drop in 2011, a 4.7
percent increase in 2010 and a
5.5 percent contraction in 2009.
Many analysts had forecast
that the economy would
emerge from recession late
last year as the yen weakened
against other major currencies,
giving a boost to Japanese
export manufacturers.
“The biggest reason for
the decline in GDP is external
demand was weak and domestic
demand did not recover as
AMR Corporation, the parent
company of American Airlines,
and US Airways Group
confirmed plans to merge in an
US$11 billion deal that would
create the world’s largest airline
by passenger numbers.
The boards of the two companies
approved the deal on 13
February, 15 months after AMR
sought bankruptcy protection.
The combined carrier is expected
to have US$40 billion in
6 March 2013
Taro Aso
quickly as we thought,” Shuji
Tonouchi of Mitsubishi UFJ Morgan
Stanley Securities in Tokyo
told BBC News.
The poor data have given
the government ammunition to
defend its “weak yen” strategy
as necessary to getting growth
back on track. Finance Minister
Taro Aso said the recent surge in
share prices and weakening yen
annual revenue and offer 6,700
daily flights.
The move will require American
Airlines and US Airways to
unite two workforces totalling
113,000 people and integrate
reservation and baggage handling
systems, computer networks
and terminals. (When
US Airways and America West
Airlines merged in 2007, The
Wall Street Journal noted, poor
technology integration caused
has “brought huge benefits to the
export sector.”
The Bank of Japan, however,
was seen to have a more positive
economic outlook despite
the country posting the third
successive quarterly economic
contraction. On 14 February,
the bank kept monetary policy
settings on hold as it noted that
the economy overall “appears to
have stopped weakening.”
The bank pledged to adopt
United States Federal Reservestyle
open-ended purchases of
financial assets and double its
1 percent target for inflation. It
made no changes to the terms of
its ¥101 trillion asset-purchasing
programme and kept interest
rates near zero in February, the
Financial Times reported.
Many in Japan expect at least
a temporary bump to growth
from higher government spending
on public works.
the airlines’ check-in systems
to crash.)
Doug Parker, the US Airways
chief executive, will serve as
chief executive of the newly
merged company, to be known
as American Airlines Group,
while Tom Horton, AMR’s
chief executive, will stay on
temporarily as non-executive
chairman.
“The combined airline will
have the scale, breadth and
Coca-Cola
revenues
short of fizz
The Coca-Cola Company, the
world’s largest soft drink maker,
saw revenue in Europe and China
decline in the fourth quarter of
2012 as it faced a range of problems
in its global markets.
The company said worldwide
sales were up by 3 percent,
below some analysts’ estimates.
Revenue for the quarter rose
4 percent to US$11.46 billion,
missing analysts’ expectation of
US$11.53 billion, according to
Reuters.
Coca-Cola said fourth quarter
net income was US$1.87 billion,
or 41 cents per share, up from
US$1.66 billion, or 36 cents per
share, a year earlier.
In China, sales declined by 4
percent in the quarter after growing
by 10 percent in the October
to December period in 2011,
while sales in struggling Europe
fell 5 percent in the final quarter
of the year.
Boards approve merger of American Airlines and US Airways
AFP
AFP
capabilities to compete more
effectively and profitably in the
global marketplace,” Parker said
in a statement. “Our combined
network will provide a significantly
more attractive offering to
customers.”
AMR reported a US$107
million operating profit for 2012,
against a US$1.05 billion loss for
2011. The deal cannot be completed
until after a judge rules
that AMR can exit bankruptcy.

Euro bloc recession deepens as major
economies report GDP contractions
France, Germany and Italy set grim tone with Q4 figures
The euro zone’s recession intensified
as gross domestic product
fell at an annual rate of 0.6
percent in the fourth quarter of
2012 from the previous quarter,
its fastest contraction since the
financial crisis began more than
four years ago.
Official data, released last
month, showed steep contractions
in the currency zone’s biggest
economies, Germany, France
and Italy, in which gross domestic
product fell more than expected.
In the fourth quarter, the
German economy contracted at
an annual rate of 0.6 percent after
expanding at a 0.2 percent rate in
the previous quarter. Meanwhile,
Italy’s economy shrank at an
annual rate of 0.9 percent, while
France contracted 0.3 percent,
according to Eurostat, the European
Union’s statistical office.
“The decline of the gross domestic
product at the end of 2012
Buffett dips
into Heinz with
takeover deal
Billionaire American investor
Warren Buffett teamed up with
Jorge Paulo Lemann, Brazil’s
second richest man, to take the
H.J. Heinz Company private in
what is reportedly the fourthlargest
food and beverage acquisition
ever.
The US$28 billion cash deal,
which has been approved by the
Heinz board, brought together
Buffett’s Berkshire Hathaway,
a conglomerate with more than
70 businesses, and 3G Capital,
a Brazilian private equity firm
backed by billionaire Lemann.
“It’s our kind of company,”
Buffett said in an interview on
CNBC, noting the food giant’s
signature tomato sauce has been
around for more than a century.
“I’ve sampled it many times.”
The deal has raised the hopes
of bankers that other merger
and acquisition activities will
accelerate.
EU banks might face more stringent financial reporting rules
Banks might have to disclose their
taxes and profits on a countryby-country
basis in the latest development
to talks on European
Union reforms to make banks
more stable.
The European Parliament is
calling for the tougher disclosure
regime as part of an EU law
implementing a global bank
capital accord known as Basel III,
the world’s regulatory response
to the 2007-2009 financial crisis.
0.3 %
0.6 %
0.9 %
GDP, Q4 2012
France
Germany
Italy
AFP
was mainly due to the comparably
weak German foreign trade: in
the final quarter of 2012, exports
of goods went down much more
than imports of goods,” said Germany’s
Federal Statistical Office.
The euro zone’s fourth quarter
contraction was sharper than the
0.1 percent drop in the previous
quarter. The October-December
period was the worst for Europe’s
economy since an almost 3
percent contraction in the first
quarter of 2009.
The results marked the currency
bloc’s first full year in which
no quarter produced growth.
Representatives from EU states
and the parliament are meeting
to finalize a deal on the law as
without it, Basel III cannot be
implemented.
The transparency requirements
have the full support of the
European Commission, however,
most EU member states are resisting
the initiative.
The Financial Times reported
that under the proposal, Barclays,
for example, would be required
Within the zone, only Estonia and
Slovakia grew in the last quarter
of 2012, although figures for
Greece, Ireland, Luxembourg,
Malta and Slovenia were yet to be
released.
The Financial Times said
that consensus forecasts had
predicted a 0.4 percent contraction
in GDP for the zone in the
final quarter, but fears at the end
of last year about the sovereign
debt crisis, unemployment and
austerity hit output.
Howard Archer, chief
European economist for IHS
Global Insight, said that the data
“brought a dismal end to a very
difficult year.”
Despite this, Archer remains
positive. “It is looking increasingly
possible that the zone could
at least stop contracting in the
first half of 2013, significantly
helped by a return to growth in
Germany,” he said.
to publish its profits and taxes in
every national jurisdiction.
Banks are worried that the
requirements, which would leave
them vulnerable to public pressure
over taxes, could be passed
when a deal on the law is reached.
Meanwhile, EU lawmakers
and member states will go
ahead with plans to cap bankers’
bonuses at no more than their
annual salary.
Germany and France have
backed parliament’s demand for
limits on bonuses and argue that
imposing caps on bonuses will
prevent the sort of risk-taking that
contributed to the financial crisis,
Reuters reported.
“This is a question of justice,”
Sven Giegold, a German Green
Party legislator, told Reuters. Parliament
insisted on a 1:1 bonus to
salary ratio, which could be raised
to 2:1 with the backing of a majority
of a bank’s shareholders.
March 2013 7

U.K. companies could face
tough “going concern” test
Accountants are concerned by a proposal from
Britain’s Financial Reporting Council to implement
changes to the corporate governance
code that would force boards to consider
threats to the company’s business model and
capital adequacy. “My concern is that it will be
difficult for many companies to meet what appears
to be such a tough test,” KPMG’s head
of audit Tony Cates told Economia. The FRC
intends to issue updated guidance by 30 June.
Swatch Group planning
switch to Swiss GAAP
Swatch Group will change from International
Financial Reporting Standards to Swiss Generally
Accepted Accounting Principles even if
securities regulators make IFRS a requirement
for inclusion in the Swiss Market Index. Nick
Hayek, the company’s chief executive officer,
said the Swiss standard would be “more practical
and less theoretical,” Bloomberg reported.
Osaka exchange probes
Manila casino payments
The Osaka Securities Exchange in Japan is investigating
how the Japan-based Universal Entertainment
Corporation accounted for millions
of dollars paid in 2010 in relation to a casino
project on Manila Bay, Reuters reported last
month. Authorities in the Philippines and the
United States have also been investigating the
accounting used to explain US$40 million in
payments to a political consultant.
Non-standard accounting set
airline losses lower: auditor
Auditors of India’s debt-ridden Kingfisher
Airlines said that the carrier’s third-quarter
net loss would have been much higher had
it followed generally accepted accounting
standards. For the third quarter ended 31 December
2012, Kingfisher reported a net loss of
7.55 billion rupees (HK$1.1 billion), a 70 percent
decline over the year-ago quarter. Auditors
B.K. Ramadhyani & Company said accounting
methods used by the airline were “not in accordance
with generally accepted accounting
standards prevalent in India.”
8 March 2013
NEWS
INTERNATIONAL
“Creative accounting” seals
deal for controversial EU budget
Double figures help Van Rompuy garner support
A difference in how European Union member states interpret figures provided
negotiators with enough leeway to strike a deal on the group’s next long-term
budget last month.
EU leaders finally agreed a budget deal for the rest of the decade after a
marathon 25-and-a-half hour negotiation session in Brussels on 8 February. It
marked the first cut in EU spending in its 56-year history.
However, the deal hinged on the fact that the budget is expressed as two
different sets of figures: payments and commitments.
Commitments are legal pledges to fund future projects or programmes, while
payments are forecasts of actual spending. Because pledges do not always result
in demands for cash, payments are always lower, Bloomberg noted.
That difference, which one official described in the Daily Telegraph as “creative
accounting,” was sufficient to finalize an agreement, since many net contributors
base their calculations on payments, while net recipients prefer commitments.
Herman Van Rompuy, the European Council president, proposed deeper cuts
to payments in the 2014-2020 spending plan, winning British support without
alienating poorer southern and eastern member countries that want to maximize
their commitments, Bloomberg reported.
The overall figure for commitments was brought down to €960 billion,
€33 billion lower than the current budget level. Payments were estimated
to total €908 billion, €34 billion less than the last compromise suggested in
November 2012.
PwC tops fees list, edging out
Deloitte amid slower expansion
PricewaterhouseCoopers held the top spot in rankings for global accounting
income for 2012, according to an industry survey.
The annual survey of fees published by the International Accounting Bulletin
showed that the Big Four accounting firms – PwC, Deloitte, KPMG and Ernst &
Young – took 67 percent of the US$165.4 billion in fees which the sector earned in
2012, a figure little changed from 2011.
Deloitte maintained its position as the second-largest firm, just US$210
million in fees behind PwC’s US$14.9 billion. Growth in income at the big firms
collectively slowed to 6 percent from 8 percent in 2011.
“There [were] almost no year-on-year changes in market share within the Big
Four,” the survey reported.
Still, the fees gap between third-ranked Ernst & Young and fourth-placed
KPMG rose sharply in 2012 to US$1.4 billion, compared with only US$170 million
in 2011.
Outside the Big Four, BDO remains in fifth place in the global rankings of accounting
firms, followed by Grant Thornton, RSM, Baker Tilly, Crowe Horwath
and Nexia.

NEWS
GREATER CHINA
Oil output increases beyond borders
amid near-record imports of crude
Overseas production generally sold internationally, data show
China has embarked on an international
oil development spree
just as crude oil imports have
approached record levels.
Crude oil imports in January
reached the third highest
level ever recorded – 5.95 million
barrels a day – as the country
experienced a cold winter and a
possibly resurgent economy.
Meanwhile, China is on track
to produce 3 million barrels a day
outside its own borders by 2015,
equivalent to the entire production
of Kuwait, after its state-owned
oil companies spent US$35 billion
buying foreign rivals last year.
“China is set to become a
major producing country outside
of its borders,” Fatih Birol, chief
economist at the International
Energy Agency, told the Financial
Times at a petroleum industry
conference in London.
A significant part of the
increased foreign production
Several local governments in
China have tightened controls on
housing loans, raising speculation
that broader policy might
be put in place in response to a
resurgent property market.
Last month, several cities
in Guangdong, Jiangsu and
Zhejiang provinces increased
minimum borrowing requirements
or capped the size of loans
available from local housing
provident funds.
10 March 2013
Fatih Birol
has resulted from merger and
acquisition transactions last year,
especially by China Petrochemical
Corporation.
Some analysts and policymakers
say China is grabbing oilfields
to secure its own energy needs.
IEA analysis, however, indicates
that Chinese oil companies generally
sell their overseas production
in the international market rather
than shipping it back to China,
the FT reported.
The new restrictions mark a
policy shift from last year, when
dozens of cities made housing
loans more easily available in
an effort to boost the faltering
property sector.
Property prices have started
to rebound since late last year,
and the shift in the provident
fund rules is a sign of how officials
are trying to rein in the market
before it picks up too much
steam, Bloomberg reported.
Chinese oil executives say that
it would be impossible for them
to meet their country’s domestic
energy needs through overseas
acquisitions because of the sheer
scale of the demand.
China is the world’s secondlargest
importer of crude.
January’s crude oil imports of 20
million tonnes were 7.4 percent
higher compared with a year
earlier and up 6.3 percent from
December.
Refined oil product imports
also rose strongly, up 32.7 percent
year-on-year, while exports rose
30.4 percent in the same period,
according to data from the General
Administration of Customs.
Meanwhile, a 793-kilometre
pipeline connecting the Indian
Ocean coast of Myanmar with
southwest China will begin
pumping gas at the end of May,
China National Petroleum Corporation
reported on its website.
China’s new home prices
rose 1 percent in January from
a month earlier, according to a
survey of 100 cities published by
SouFun Holdings, one of China’s
leading real estate Internet
portals. That was the biggest
gain in two years and the eighth
consecutive month of increasing
home prices.
The number of home sales in
27 major cities increased more
than sixfold during the Lunar
Saudi prince
takes stake in
Internet firm
Saudi Arabian investment
company Kingdom Holding has
bought a stake in Chinese online
retailer 360buy Jingdong.
Kingdom, controlled by Saudi
billionaire Prince Alwaleed bin
Talal, led a group of investors
that included Baidu co-founder
Robin Li and Russia’s Digital Sky
Technologies in taking a US$400
million stake in 360buy, the company
announced on 16 February.
Kingdom itself invested US$125
million in the Beijing-based
company.
“This new investment highlights
the recognition the global
capital market has for 360buy’s
business development,” Kingdom
said in a statement.
China has the highest population
of consumers who buy goods
online, with nearly 220 million
people making purchases in
2012, according to industry
researcher eMarketer.
Cities put curbs on housing loans as property market rebounds
AFP
New Year holiday compared
with a year earlier, according to
SouFun.
Kunshan, in Jiangsu province,
was the latest to tighten its rules.
The local government said that
from 25 February residents
would need to have paid into the
local provident fund for more
than a year to be allowed to apply
for assistance, up from a previous
minimum of six months of
contributions.

FDI declines 7.3 percent amid worries
over economy in key export markets
Investments from Japan, U.S. see sharp drops; EU inflow rises
Foreign direct investment into
China fell for an eighth successive
month in January, dropping
7.3 percent from a year earlier
to US$9.27 billion, the Ministry
of Commerce announced on 20
February.
Meanwhile, non-financial
outbound investment rose 12.3
percent to US$4.91 billion.
“The fall likely reflects weaker
perception of China’s growth
among foreign businesses after
the economy slowed to a 13-year
low last year and as its growth
potential has been lowered by
the weaker outlook for its main
export markets,” said Dariusz
Kowalczyk, senior economist
and strategist at Credit Agricole
CIB in Hong Kong.
China attracted US$111.7
billion in FDI in 2012, just short
of the record US$116 billion received
in 2011 and the first annual
fall in three years. Inbound
investment dropped 3.7 percent
last year.
Japanese investment in
China fell 20 percent in January
to US$640 million, while
investment from the United
States also dropped 20 percent
to US$270 million, the ministry
said.
The drop, the 14th in 15
months, extends the longest
streak since the global financial
crisis in 2008-09 and is the
largest since July. “The January
data is quite worrying because
we’ve had a string of declines,”
Kowalczyk said.
The government expects FDI
will be stable this year while
the broader situation stays
relatively grim, Shen Danyang,
a Commerce Ministry spokesman,
said.
China remains the world’s
second-largest recipient of
foreign investment after the
U.S., Shen noted.
In January, the European
Union invested a total of
US$820 million in Chinese
enterprises, up 81.8 percent
from a year ago.
Pakistan hands over key port to Chinese company
Pakistan has awarded a contract
to manage the crucial port of
Gwadar to a Chinese stateowned
enterprise, China Overseas
Port Holding Company,
which financed more than 80
percent of the US$248 million
initial development cost.
“The operation of the port
marks a new era in China-
Pakistan business cooperation,”
the Associated Press of Pakistan
quoted Pakistan President
Asif Ali Zardari as saying at
a ceremony on 20 February
also attended by the Chinese
ambassador, Liu Jian.
The port, located on the
US$4.3
billion Fall in FDI
in 20122
Arabian Sea coast of Baluchistan
province, was transferred from
the control of the Port of Singapore
Authority to the Chinese
group.
The Singaporean group had
refused to continue to invest
in the project, saying that the
Baluchistan government had
failed to honour its land transfer
agreements under the original
40-year lease signed in 2007.
In 2010, the Chinese government
offered to run the port
if the provincial government
constructed 20 more berths.
In January, Pakistan’s cabinet
voted to transfer the port’s
management to the Mainland
company.
Both Beijing and Islamabad
view Gwadar as part of a plan
to open up an energy and trade
corridor from the Persian Gulf
to western China. Zardari
noted that about 60 percent of
China’s crude oil comes from
Gulf countries that are close to
Gwadar.
China has proposed building
an oil refinery and a petrochemical
plant for Gwadar. Great
United Petroleum Holdings from
China has already carried out a
feasibility study for a US$13 billion
petrochemical complex.
London takes
title from HK
on office costs
London has dethroned Hong
Kong to regain the dubious title
of world’s most expensive office
real estate market, according to a
survey published last month.
It was the first time since
2008 that London took the
top spot in the annual survey
conducted by real estate services
firm Cushman & Wakefield.
At £1,848 per square metre,
or £170 per square foot, London’s
occupancy cost, which includes
taxes and charges for cleaning
and other services, is 20 percent
higher than Hong Kong and more
than twice those of Paris, New
York and Moscow.
While rent reductions in Hong
Kong’s central business district
(CBD) saw it drop to second
place, soaring rental costs are
continuing to force restaurants
and shops to close. The landmark
Lei Yuen Congee Noodle shop,
behind Sogo in Causeway Bay,
closed its doors on 29 January
after 42 years in business. The
landlord had doubled the rent to
HK$600,000 a month.
Meanwhile, the Zona Sul area
of Rio de Janeiro entered the
Cushman & Wakefield top three
with an average rent rise of 43
percent over last year.
Beijing’s CBD placed at number
seven on the list, following
Delhi’s Connaught Place, the
Tokyo CBD and the Moscow CBD.
Rounding out the top 10 most
expensive office markets were
New York’s Midtown, the Sydney
CBD and the Paris CBD.
March 2013 11

High activity in ETF reflects
untapped interest in stocks
An exchange-traded fund tracking Mainland
equities became the most traded security
on the Hong Kong exchange in January,
the Financial Times reported last month.
The iShares A50 ETF, which mirrors the
performance of China’s top 50 listed companies,
recorded a higher turnover value in
January than any listed stock in Hong Kong,
the paper reported.
Lunar New Year prompts
450 billion yuan injection
The People’s Bank of China pumped a record
450 billion yuan into money markets
on a single day in an attempt to satisfy a huge
demand for cash before the Lunar New Year
holiday last month. The liquidity injection on
5 February was only short term in nature, but
analysts told the Financial Times that the central
bank had honed its use of open market
operations in recent months to ensure more
stable funding for banks, investors and companies.
Deloitte sued over audits
of ChinaCast Education
Several investment funds have sued the
affiliates of Deloitte Touche Tohmatsu in
China and the United States over losses at
ChinaCast Education Corporation, Reuters
reported. The funds seek to recover tens of
millions of U.S. dollars from Deloitte, which
audited the company’s financial statements.
ChinaCast took out loans and pledged its assets
to third parties without telling investors,
the complaint alleges.
Auditors step up scrutiny
to combat extravagance
The top auditing body announced plans
to beef up audits of fiscal funds as part
of government efforts to reduce extravagance.
The National Audit Office said it has
ordered local authorities to prioritize the
auditing of funds appropriated for government
departments at all levels for meetings,
receptions, international travel and
vehicle purchases.
12 March 2013
NEWS
GREATER CHINA
Disparate GDP figures renew
doubt over official statistics
Unexplained gap is size of Guangdong economy
A 5.8 trillion yuan difference between China’s official gross domestic product
and adding up those of its 31 provinces and administrative regions has once again
called into question statistical accuracy.
The Beijing News reported last month that China’s nominal GDP hit 51.9 trillion
yuan last year, equivalent to 7.8 percent annual growth for the year. Latest economic
output figures for the sum of all its provinces, however, came in at a much
higher 57.69 trillion yuan, the paper reported.
The GDP gap – equivalent to the size of Guangdong’s economy – is not a new
phenomenon. Discrepancies between national and provincial figures have appeared
since the country began calculating them separately in 1985.
Liu Yuanchun, vice president of the economics department at Renmin University,
told the Beijing News that such difference was “difficult to avoid” because of
double-counting and a lack of accuracy and transparency in the country’s statistical
community.
Zhu Baoliang, an economist at the National Development and Reform Commission’s
State Information Centre, told China Daily that the central government will
be “determined to make sure all future data are correct.”
However, Zhu expected the gaps to become much larger before any corrective
action would be taken.
Spain denies extradition bid for
fugitive Hong Kong accountant
A fugitive accountant wanted in connection with an alleged multimillion-dollar
fraud has been freed from custody.
The Constitutional Court of Spain ordered the release of Gabriel Ricardo
Dias-Azedo, the former Hong Kong managing partner of Grant Thornton, after a
two-year battle to have him extradited.
The court ruled that Hong Kong had no power to ask for his return because
it was not a sovereign state and did not have a reciprocal extradition treaty
with Spain.
The Macau-born Dias-Azedo, a Hong Kong resident, left the city in September
2009 after allegedly misappropriating more than HK$90 million from Grant
Thornton clients. He was detained in Salamanca in October 2010, after a request
by Hong Kong officials.
Hong Kong officials had been trying to secure the return of the 66-yearold
Dias-Azedo under the United Nations Convention Against Corruption, a
multilateral agreement adopted by 140 signatories, including China and Spain.
The Spanish government had earlier approved an extradition request from
Hong Kong, as a part of China. However, Dias-Azedo’s defence appealed and
disputed Hong Kong’s rights under the convention. On 15 February, the country’s
top court agreed and ordered his release.

Corporate governance
A recent initiative suggests Hong Kong-listed companies should
diversify their board composition. George W. Russell looks at
what is being done to stir up the mix
Illustrations by Harry Harrison
14 March 2013
Balancing
the

oards
Judy and Andrew Tsui
The reason behind
the decision by
Hong Kong Exchanges
and Clearing
to issue a code
provision to promote
board diversity
is revealed by a cursory glance at a profile
of the average Hong Kong-listed company
director: of Chinese descent, a Hong Kong
resident, mid-50s and likely male.
While the ethnic average is no surprise,
the preponderance of middle-aged men has
prompted the exchange to take action in a
bid to make the city’s directors better reflect
society as a whole.
“We are of the view that diversity encompasses
more than simply gender and
age [but] statistics on gender and age are, to
an extent, representative of the diversity or
lack thereof on issuers’ boards,” says David
Graham, the HKEx chief regulatory officer
and head of listings.
As a result, HKEx has issued amendments
to its Corporate Governance Code that will
take effect from 1 September. The code provision
directs all listed companies to report
on their diversity policy and supply considered
reasons should they not conform.
Under the stock exchange’s “comply
or explain” code provision, listed companies
are expected to implement policies to
encourage more women, men aged 40 or
younger and people of wider professional
experience to join their boards.
March 2013 15

Corporate governance
Board imbalances
Though by no means the only measure,
women are the most obvious glaring anomaly
when it comes to boardroom diversity in
Hong Kong. Although women account for
roughly half the city’s population, they comprise
just over 10 percent of board positions
in Hong Kong’s listed companies, according
to HKEx data. Four out of 10 listed companies
have no women on their board at all,
the exchange noted.
“Gender diversity in Hong Kong is somewhere
between poor and extremely poor,”
says Keith Pogson, leader of Ernst & Young's
Asia Pacific financial services office, immediate
past president of the Hong Kong
Institute of CPAs and a prominent diversity
advocate in the accounting profession.
HKEx statistics also show that two-thirds
of directors on Hong Kong-listed issuers’
boards are between the ages of 41 and 60.
Nearly a quarter of directors are over 60.
“While gender is obviously important,
age is important, too,” says Jamie Allen, secretary
general of the Asian Corporate Governance
Association in Hong Kong.
A worldwide
phenomenon
Hong Kong is the latest major financial market to
take action on board diversity — especially in terms of
gender. “The lack of women on boards is a worldwide
phenomenon and a reflection of a wider issue concerning
diversity,” says David Graham, chief regulatory officer and
head of listings at Hong Kong Exchanges and Clearing.
Some European countries, such as Norway and France,
have introduced mandatory board quotas for women.
“We’re not against mandatory quotas but it’s open to
abuse,” says Jamie Allen, secretary general of the Asian
Corporate Governance Association. “The good companies
take it seriously but the majority would do the minimum to
comply.”
In the United Kingdom, the percentage of women on
the boards of the 100 largest listed companies has risen
over the past year to a record 15.6 percent. The British
government has told FTSE 100 companies to have a
minimum 25 percent of female directors by 2015 or else
face as-yet-unspecified measures.
In Australia, 15.4 percent of ASX 200 board members
were women as at 21 February, according to the Australian
Institute of Company Directors. More than 50 of the index’s
boards still do not have any women directors.
16 March 2013
Chinese companies listed in Hong Kong
are setting the pace when it comes to younger
directors, Allen notes. “A lot of [Mainland]
companies being listed in Hong Kong have
chairmen and chief executive officers younger
than 50,” he says. “If you look at the boards
of Hong Kong companies, particularly bigger
ones, they tend to be much older.”
Ethnicity is another factor, says Allen,
though not a critical one for domestic
companies. “If you have an international
company with no international or foreign
directors then the question is: do you have
a board that really has the range of skills
and expertise you’re looking for?”
While discussions on diversity typically
refer to visible indicators such as gender,
ethnic background and age, there are other
factors, notes Fern Ngai, chief executive of
Community Business, a Hong Kong-based
non-profit organization seeking to advance
corporate social responsibility in Asia.
“These may include an individual’s cultural
and educational background, professional
skills and experience, as well as their personality
and behavioural traits,” Ngai adds.
Pogson argues for more non-Hong Kong
residents to be appointed to boards. “A lot
of areas where companies struggle is when
they want to be multinational rather than
national,” he says. “They lack the cosmopolitan
influence.”
Another consideration, more peculiar to
Hong Kong and Asia in general, is directors
who are family members of company owners.
“There’s a very big difference between
family-owned companies and companies
where there is no one clear majority shareholder,”
says Pogson. “Management [in companies
that aren’t family owned] is much
stronger and corporate governance is there
to protect the shareholder interests.”
Benefits of diversity
The jury is out on the exact correlation between
board diversity and performance
metrics such as profitability, efficiency or
share price, and HKEx is cautious about generalizing
about board diversity and betterrun
companies.
“Numerous academic research indicates
that increased diversity on boards is asso-
Listed companies in Australia must issue a statement
about the mix of skills and diversity that the board is
looking to achieve. “New directors are generally appointed
to fill perceived gaps in skills, experiences and knowledge,”
notes Katie Spearritt, chief executive officer of Diversity
Partners, a consultancy in Melbourne.
The situation in the United States is little better, where
by the end of 2012, women held 16.6 percent of board
seats at Fortune 500 companies. Kathy Liu, chief financial
officer at apparel maker Kizan International in Brisbane,
California, notes increasing pressure in the U.S. from
institutional investors demanding board diversity.
“The California Public Employees’ Retirement System
[the largest public pension fund in the U.S.]... is one of
the leaders in this area, promoting diversity of skill set,
background, perspective and experience,” says Liu, a Hong
Kong Institute of CPAs member.
Liu noted that the pension fund has written diversity
guidelines into its corporate governance to encourage
companies to take into account historically underrepresented
groups on the board, including women and
minorities, and raises board diversity issues with underperforming
companies in its US$175 billion portfolio.

ciated with better financial performance,”
says Graham at HKEx. But he adds, “The
exchange is unable to comment on whether
there is an established link between diversity
and financial performance of a firm.”
There have been several studies suggesting
that having a generally more diverse
board makes financial sense. A Credit Suisse
Research Institute study of 2,400 companies
between 2005 and 2011 published last year
suggested that companies with at least some
female board representation outperformed
those with no women in terms of share price
performance.
Advocates say changes should be made
for sound business reasons. “This is not diversity
for diversity’s sake,” says Ngai of
Community Business. “It is about improving
board performance and positively affecting
the company’s business results.”
Proponents of diversity argue that it can
promote effective decision-making and bet-
ter governance. “Board diversity gives diversified
insights and knowledge,” says Nelson
Lam, an Institute fellow who heads Nelson
and Company, a CPA firm. “Issues faced by
an entity can be viewed from different angles
and more comprehensively.”
Graham at HKEx agrees. “Research also
indicates that board diversity prevents
groupthink, utilizes talent and improves
corporate reputation,” he says. “We are optimistic
that the new measures will lead to
changes to corporate behaviour.”
Hong Kong companies that already have
a more diverse board stress the benefits. “Directors
from a diverse and complementary
background bring more collective insight
and enrich constructive board discussions on
strategy,” says Wendy Yung, executive director
and company secretary of Hysan Development
Company and an Institute member.
Hysan’s board of 14 includes four women,
which is a relatively high proportion.
A PLUS
Allen at the Asian Corporate Governance
Association agrees, saying that looking outside
established sources for directors encourages
a “move away from family members,
friends or like-minded people cut from the
same cloth. It moves away from a homogenous
board that doesn’t question decisions.”
The Institute has lent its support to the
HKEx initiative, which will be regularly reviewed
for effectiveness. On 5 March, the
Institute hosted a discussion, “Gender diversity
in the boardroom,” in which panellists
discussed the obstacles that women face in
attempting to climb the corporate ladder.
Peter Tisman, the Institute’s director of
specialist practices, is a reviewer of the draft
guide for Hong Kong-listed companies, Improving
Governance through Diversity, to be
issued in Chinese (both traditional and simplified)
and English by Community Business
this month.
Such activities might help overcome the
March 2013 17

esistance to the measure noted by prodiversity
advocates. “I believe the main
challenge is to change the mindset of existing
board members to accept diversity,” says
Jenny To, regional recruitment and talent
development director at Pernod Ricard Asia
in Hong Kong and an Institute member.
International experts warn that existing
boards might resent an invasion of newcomers
with different backgrounds. “People [who
come from outside] the mainstream could be
sidelined or kept out of the decision-making
process,” says Joseph Santana, a diversity
and inclusion consultant in New York.
Allen agrees, saying that if HKEx had
made board diversity mandatory rather
than a “comply or explain” code provision,
there would have been fiercer resistance.
“I guarantee there would have been a lot
of opposition,” he says. “There were a lot of
quite sexist responses to the proposal.”
Another challenge is the limited pool of
“board-ready” professionals in Hong Kong.
“The number of senior accountants and lawyers
around town is somewhat limited,” says
Pogson at Ernst & Young. “You find a lot of
familiar faces on boards around town.”
One solution is the pool of board-ready
women that the Hong Kong government has
appointed over the years to statutory bodies.
“It’s actually about building a pipeline,”
says Pogson. “People have progressed by
sitting on government bodies, charities and
subsidiary boards so when they end up on
the main board of a major organization they
have a good track record.”
Pogson points to the launch next month
of a Hong Kong branch of the London-based
30 Percent Club, a female-director advocacy
group, as an encouraging development.
“We’ve got a lot of support around town for
that,” he says.
What also remains to be seen is how
many diverse characters will actually seek
or accept Hong Kong board appointments.
“The rewards of sitting on boards are not
very exciting,” says Pogson. “There needs to
be a revisit on board remuneration so that
you do attract the right talent.”
Diversity advocates remain hopeful,
however. Su-Mei Thompson, chief executive
of The Women’s Foundation, a Hong Kong
advocacy group, says there’s no reason why
the city can’t lead the world in diversity.
“As a major financial centre with an
abundant talent pool of qualified men and
women, I believe Hong Kong has the opportunity
to assert itself as a modern, sophisticated
economy that nurtures talent across
the workforce.”
March 2013 19

Council members
Meet the Council
Responding to an
evolving profession
In the second part of the series in which
Council members meet our readers,
lay member Edith Shih outlines how
accountants can hone their skills to
increase their value to the profession
and society
This is my sixth year as a lay member
of the Institute’s Council. I remain
energetic and excited attending to
Institute matters and I find myself privileged
to still be learning from my experience. The
Institute, the Council and the leadership
team occupy a special place in my heart.
The Institute has an excellent reputation
among other Hong Kong professional organizations
and its international peers.
Its Council members, who set the strategic
direction of the Institute, are leaders in the accounting
field, and their abilities are complemented
by the skill sets of the lay members
and government-appointed members. The
leadership team, comprising high-calibre
professionals, collaborates well with the
Council on the setting and execution of Institute
strategy, much to the envy and admiration
of smaller bodies.
I have witnessed the changes that have
taken place at the Institute over the past five
years and how the Council and the leadership
team have embraced the need to respond to
the new requirements of members, among
other reasons, as a result of changes in the regulatory
regime of the accounting profession,
the markets in which our CPAs operate and
the demography of the Institute membership.
The issues closest to my heart include audit
liability reform, governance issues at the
Institute and the growth of the younger generation
of members.
One important project, to which I am devoting
much time and effort, is the Institute’s
sixth long-range plan. As the chair of the
“making a difference to society and thought
leadership” group, I look forward to contributing
to the Institute on this initiative, which
is well suited to me as a lay member of the
Council and encompasses part of my own
area of professional practice and experience.
This might seem to be among the “soft” concerns
of the Institute, but it is important and
beneficial to the profession and society.
20 March 2013
“It is vital that
the profession
continues to
attract the
best talent in
the market.”
Edith Shih
Lay member
I also look forward to working on governance
issues as a member of the governance
committee. Here, I am able to apply my experience
in the legal, regulatory and compliance
fields.
It is vital that the profession continues to
attract the best talent in the market. In addition
to focusing on skills that come directly
from accounting and business, I believe in
cultivating graduates from other disciplines,
thereby cross-fertilizing the profession with
diverse skills and mind sets, such as law, arts,
languages and sciences. This adds value to
the overall talent pool.
We should expand the young minds that
form an increasing percentage of the Institute’s
membership and cultivate their ability
to think outside the box and develop leadership
abilities that are beyond mere numbers
and ledgers.
I very much appreciate the efforts the
Institute has expended on Mainland China
and the achievements that it has garnered
to date. We have no choice but to work very
closely with the Mainland, not only for
extending our horizons, but also for our
very survival. China is a big country and we
must deploy our resources strategically and
intelligently.
Edith Shih is also head group general counsel
and company secretary of Hutchison Whampoa
Group and president of the Hong Kong Institute
of Chartered Secretaries.

“The profession
should continue to
work closely with
the government,
regulators and
the financial
community as a
whole.”
Andrew Fung
Lay member
Vital ingredients to
Hong Kong’s success
Lay member Andrew Fung says accountants
are uniquely placed within the city’s
vibrant financial sector
As an Institute Council lay member,
I believe I can observe the Institute
with a certain level of independence
and detachment. I am impressed by
the Institute’s organizational structure, the
quality of its governance and its dedication to
serving its members.
From my vantage point on the Council, I
can confidently say that the elected Council
members are very committed to improving
the wellbeing of the accounting profession
in all directions, such as the recognition of
Hong Kong CPAs in the Mainland and the
reputation of CPAs in Hong Kong as well as
international financial markets.
Institute members are vocal and willing
to express their views to the Council and that
attitude is facilitated by a sufficient variety of
channels to ensure good communication.
The accounting profession is one of the
vital pillars of Hong Kong’s financial market.
To maintain the city’s competitiveness as an
international financial centre, the profession
should continue to work closely with the government,
regulators and the financial community
as a whole.
One of the major tasks that the Institute
faces in future years is a greater degree of
collaboration with the Financial Reporting
Council. Between them, the two bodies will
have to ensure that Hong Kong’s regulatory
framework operates in line with international
regimes without compromising the operating
environment in which Institute members
work. As a financial and banking sector
professional, I hope I can provide appropriate
opinions and suggestions to the Institute in
this area.
The banking community needs the advice
of accountants to cope with new regulatory
A PLUS
requirements, whether they are
decided internationally, such
as Basel III, or unilaterally, such
as the United States Foreign Account
Tax Compliance Act and
Dodd-Frank Act.
The evolving regulatory environment
in Mainland China must
also be carefully noted. Hong
Kong has benefited from the recent
liberalization of Mainland
capital markets and is favourably
positioned to take the lead
in China-related financial development,
including internationalization
of the yuan trade as well
as increasing yuan-denominated
foreign direct investment and
outbound direct investment.
The accounting profession
plays an essential role in introducing
financial instruments
such as the Renminbi Qualified
Foreign Institutional Investor
scheme and “dim sum” bonds.
The credibility of such new products
is based on the quality due
diligence done by accountants.
The Institute should continue
to provide advice to Mainland
regulators on such subjects as
international good practices and
seek more opportunities in the
Mainland for its members. Constant
communication and education is essential,
so the latest information about business
developments and career opportunities
in the Mainland must be made available to
members.
Of course, we must secure the future of
the accounting profession and maintain the
quality of human capital. Accountants should
be encouraged to seek other academic and
professional qualifications to boost their
competitiveness, such as a law degree or certifications
in financial advice or financial risk
management.
More information should be extended to
secondary school students to help them decide
whether they would like to enrol in university
accounting programmes and join this
august profession. They must be made aware
that, thanks to the Institute’s efforts, the accounting
profession is greatly respected not
only in Hong Kong, but also throughout the
country and the wider world.
Andrew Fung is also an executive director of
Hang Seng Bank.
March 2013 21

Entrepreneurism
VIRTUAL CFOs FOR
THE REAL WORLD
Not every company will appoint a full-time chief financial officer,
whether due to its smaller size or other business considerations at a
certain development stage. Individual CPAs, as well as Big Four firms
and bespoke providers, have come up with an alternative to help.
George W. Russell reports on the rise of the virtual CFO
Illustrations by Alan Ho
When Chris Thorp
and his business
partners decided
to set up a wholly
owned foreign enterprise
in Shanghai, they saw a potential
minefield ahead. Too small to do it themselves
and not large enough to deploy a fullfledged
finance department, Thorp saw a
need for an alternative solution better suited
to his video production company, Pixel Box.
A friend introduced him to the world of
virtual chief financial officers – experienced
professionals who act for a time as a
company’s top financial executive without
being a full-time employee or having an office
in the company’s headquarters.
Thorp chose Orangefield ICS, the Hong
Kong unit of a Dutch business consultancy,
which provides virtual CFO services
through the Hong Kong Institute of CPAs
members that it employs.
“ICS helped us through this and successfully
set up the wholly owned foreign enterprise,”
says Thorp. “They were and are able
to manage our client billings and payment
services without needing us to be physically
based on the ground in Shanghai.”
Orangefield ICS is part of a burgeoning
sector in Hong Kong helping small- and
medium-sized enterprises – often start-ups
– expand and modernize by offering C-suite
services to companies that wouldn’t ordinarily
be able to afford them.
Donald Tsang, who is head of commercial
22 March 2013
services at Orangefield ICS and an Institute
member, says the company’s provision of
virtual CFO services has grown by 50 percent
in each of the past three years in Mainland
China and Hong Kong.
The company now has more than 100
clients for which it provides virtual CFO
services. “They [Orangefield] have the lo-
“ Our challenges
and difficulties are
more or less the
same as those of a
full-time CFO.”
cal knowledge allowing them to manage all
our issues from tax through to staff contracts
and salaries,” says Thorp.
The growing popularity of virtual CFOs
has attracted the attention of CPAs, from Big
Four firms to individual practitioners. Stuart
Iliffe, an Institute member, became a virtual
CFO to companies in Hong Kong and elsewhere
from his home in the Canadian capital
of Ottawa.
“A CFO adds credibility to the company,”
says Iliffe, a veteran of PricewaterhouseCoopers
and KPMG in Asia, North America and
Africa. “It gives outside stakeholders more
confidence in knowing someone independent
is involved with the day-to-day running
of the company.”
Tsang says much of the assistance that
Orangefield ICS provides is in the field of
back office accounting systems. “What we
do is basically financial management, all
their financial reporting under different
standards and compliance with regulatory
provisions both in Hong Kong and China and
other jurisdictions as well, such as Japan.”
However, both Tsang and Iliffe stress that
their role as virtual CFOs is not just advisory
– they actively decide strategy at the companies
they represent. “Our challenges and difficulties
are more or less the same as those of
a full-time CFO,” says Tsang.
Iliffe says that, as a virtual CFO, he reports
to the company’s chief executive officer
and to its shareholders. “You have to have
that mandate,” he says. “If you’re in charge,
you make the decisions.”
Cycles of virtual demand
The virtual CFO concept began in the United
States in the 1990s. The catalyst was
the technology boom in which hundreds of
small companies emerged in Silicon Valley.
Many of these start-ups were not big enough
to warrant a full-time CFO but were engaged
in fund-raising complex enough to require
seasoned finance professionals with business
experience.
“We view our role not just as outsourcing
all or part of a finance team,” says Don
Andrade, a Boston-based virtual CFO and
an American Institute of CPAs member.
“Rather, we serve as a strategic business
partner whose success and reputation is di-

ectly aligned with the organizations that
we serve.”
The dotcom bust in 1999-2000 crimped
the need for virtual CFOs but they rode a
new wave after 2007 as the global downturn
pressured companies to cut back on fulltime
finance staff. CFO service providers
have seen strong growth in markets such as
Australia, Canada and the U.S.
Virtual CFOs are popular in New Zealand,
where Big Four firms such as Deloitte
and several boutique providers offer such
services. “We offer all accounting and advisory
services from financial governance
through transactional processing using
cloud software applications,” says Roger
Hatrick-Smith, a New Zealand Institute of
Chartered Accountants member and a director
of VCFO in Wellington.
Australia is another major market for
virtual CFOs. “We provide traditional CFO
services, business support, operational sup-
“ We provide
traditional
CFO services,
business support,
operational
support and
strategic support
for our clients.”
port and strategic support for
our clients,” says Steve Copplin,
managing director
of the Brisbane office of
CFOCentre, a national
provider. “We don’t
necessarily do it
all ourselves but
we make sure
the right service
providers
are on the job as
necessary.”
In Australia, virtual
CFOs such as Copplin
work with clients from
one to five days per month
at the beginning and then
scale down to less frequent
on-site visits. “We find the engagements
are usually more intensive
in the first few months and
then settle down,” he says.
“Virtual, for us, means where the
client is in a remote location or region.
We typically see them maybe once a
quarter and engage at other times via electronic
means such as Skype and email.
“We work out a year planner with our
clients to take into account things like year
end, budget cycle and strategic planning.
They get certainty from an activity and a
cost perspective.”
Australian clients say a virtual CFO’s assistance
extends beyond day-to-day admin-
March 2013 23

Entrepreneurism
24 March 2013
“ Our client base
is growing
businesses,
small- and
medium-sized
multinationals
that are very
focused and
committed to
expand in Asia.”

istration to overall business planning. “A
virtual CFO not only assist with establishing
the support and systems, but also help with
the strategic plans and cash flows to ensure
we have adequate funding in place to grow
the business,” says Warren Barry, managing
director of Blackglass, an Internet marketing
company in Sydney.
Mainland matters
In Hong Kong, stock exchange rules require
listed companies to appoint CFOs that are
permanent staff. But multinational corporations
listed elsewhere see a virtual CFO as a
cost-effective stepping stone to enter China,
either directly or through Hong Kong – creating
new opportunities for CPAs in the sector.
Institute members who are virtual CFOs
stress that they are bound by the same rules
as full-time CFOs.
“We have clients who are listed overseas
but have major subsidiaries in Hong Kong,”
says Tsang at Orangefield ICS. “Our client
base is growing businesses, small- and medium-sized
multinationals that are very focused
and committed to expanding in Asia,
Hong Kong and China.”
Tsang says Mainland growth has been
enough to prompt the company to open a
Shanghai office, its first in the Mainland, in
November 2012. “We plan to open more offices
in China in 2013 and 2014,” Tsang adds.
The key to China’s potential for virtual
CFOs is that not only do small- and medium-sized
companies in China embrace the
option, Mainland officials have also given
tacit approval to the concept. “In Shanghai,
we have our own people visit the tax office
and government offices,” says Tsang. “The
authorities have only one contact person [to
deal with] and they appreciate that.”
China’s potential could bring new players
into Hong Kong’s virtual CFO market. Copplin
at CFOCentre says his company, which
has clients in Europe, Canada and South
Africa, and is about to open an office in the
U.S., is now evaluating Hong Kong. Any initial
clients in the city would be serviced from
Singapore or Australia, at least at the beginning.
“If the demand is strong we would set
up operations with a local team,” he says.
That demand has also created a buzz
among business process outsourcers. Indian
companies that provide offshore virtual
CFO services, mostly to British and U.S.
clients, are eyeing possibilities in the Asia-
Pacific market.
“For example, if a Hong Kong business
faces rapid expansion elsewhere in Asia, the
in-house team is often too busy or not well
equipped to answer the strategic and compliance
questions. This is where we can add
value,” enthuses Harish Rao, global head of
business development for Chennai-based
Sundaram Business Services.
Sundaram provides virtual CFO support
for clients in Australia and the U.K., as well as
India. “We have synergy with a market such
as Hong Kong as it carries a legacy of British
accounting and legal regimes, like in the
other markets we service,” says Rao, who is
based in Melbourne.
Meanwhile, in Hong Kong, virtual CFO
companies can leverage their early relationships
with clients to provide ongoing services.
The China subsidiary of Pixel Box, the
Orangefield ICS client, is now up and running
in Shanghai but continues to rely on its
virtual CFO operation.
“Orangefield ICS now continues to help us
manage and run our Shanghai operation on
an almost day-to-day basis,” says Thorp, the
managing director. “They issue the fa piao
[tax receipts] to our clients, and manage our
payments, tax fillings and staff salaries. It
would be almost impossible to do this without
their knowledge on these matters.”
March 2013 25

Professional development
Passing
the torch
Nurturing budding accountants is vital to the profession.
Jemelyn Yadao reports on the benefits of corporate
mentorship programmes
Illustrations by Alan Ho
Growing up as an only
son, Brian Wong could
never know what it was
like to have an older
brother. He certainly
didn’t expect he would
experience a fraternal relationship while
working at an accounting firm.
“He has helped me a lot, especially when
I was a fresh graduate and had difficulties
dealing with a new working environment,”
Wong, a Hong Kong Institute of CPAs member,
says of Kenny Wong, director of corporate
advisory services at RSM Nelson Wheeler
and also an Institute member.
“He has shared his own personal experiences
on how to encounter issues in a good
way,” says Brian Wong. “He has inspired me.”
The Wongs, who are unrelated, have
been paired since 2008 and are an example
of the benefits of mentorship in the accounting
profession.
For many years, several accounting firms
like RSM have been running structured
mentorship programmes that link mentors
with mentees to encourage the professional
development of CPAs and the success of the
firms themselves.
Typically, in the accounting profession, a
mentor, sometimes known as a counsellor,
will be an accountant at a senior or managerial
level with a number of years of frontline
experience. A mentee is usually a junior
practising accountant.
Mazars Consulting Asia launched its one-
26 March 2013
year mentoring programme in May 2012,
when the firm found that it was not efficiently
developing the leadership skills of its
employees in Asia.
“The mentoring programme is not only
about enlarging the Asian talent pool but
also to further develop the qualities of our
future leaders,” says Singapore-based Bob
Aubrey, partner and practice leader for people
development at Mazars, who created the
firm’s cross-border mentoring programme.
“Our Asian high potentials had good
technical education and experience but
lacked leadership skills and were not prepared
to work across borders,” he notes.
Through the scheme, promising junior
employees across Asia are mentored by partners
in a different country. “We believe that
developing leaders from different parts of
the world contributes to the long-term success
of the firm,” Aubrey explains.
Future leaders
The Big Four also view mentor-mentee relationships
as vital for a firm’s future success.
“Leadership in today’s business world
is not straightforward,” explains
Agnes Chan,
Hong Kong and
Macau regional
managing partner
at Ernst & Young
and an Institute
member. “This
is why we be-
lieve it is important to make a significant investment
in preparing our people for the role
of partner.”
As part of E&Y’s global partner pipeline
programme, known as Global NextGen,
each participant is provided with a mentor
from outside their own service line and in
the same location. The seasoned mentor –

“ He has helped me a lot, especially when I
was a fresh graduate and had difficulties
dealing with a new working environment.”
usually a senior partner – is required to devote
between five and eight hours of their
time a year to their mentee.
Giving the protégé technical advice is not
the only role of the mentor. “They support the
candidate by clarifying their development
needs and options, and helping them find
new experiences across the firm,” says Chan.
She says this method of mentoring
has proven to be effective because
55 percent of mentees in the
programme’s first year
reported that the experience
had been valuable
to them.
“For those who
reported less or no
value was provided,
it seems most of them
did not actually meet
their mentors more than
once,” Chan says. In order
to tackle this, Chan
says more effort will
be made this year to make
sure the programme gains
momentum.
Another benefit of mentoring
programmes is they help
firms hold on to promising talent,
adds Chan. “It has a positive impact on
retention and career progression of highpotential
senior managers,” she says.
Grant Thornton implemented
its mentorship programme in
2010 and views it as instrumental
in helping the firm reach its ambitious
expansion targets by ensuring
knowledge and skills are
spread throughout the company.
“What each of our people do
and the way we behave impacts
the firm’s growth plans, as well as the people
around us,” says Kelvin Kwong, staff partner
at Grant Thornton and an Institute member.
“Our programme is in place to make sure that
the behaviour that will make the biggest difference
to our clients is sustainable.”
In some cases, mentoring programmes
help firms identify fresh talent earlier. To
support potential future CPAs at
local universities, KPMG’s
mentorship programme
involves a manager
or senior manager
who works in audit,
tax and advisorybecoming
a mentor
to a group of
three to four
students.
Mentoring
helps young
people gain a
better understanding
of the
profession and
its demands.
Kenny Wong and
Brian Wong
“KPMG also benefits from the programme as
it helps us to promote our brand, build relationships
with the universities and student
societies and give something back to the student
community,” says Margaret So, a director
at KPMG China and an Institute member.
Mutual benefits
Before the start of their mentor-mentee relationship,
RSM colleagues Kenny Wong and
Brian Wong, at different times, were students
at the University of Hong Kong. RSM
implemented its mentorship system in 2005
as part of the work experience component of
the Institute’s qualification programme.
The firm makes an effort to match mentors
with mentees who have similar hobbies
and interests or who went to the same
university. In four years, the older Wong has
watched the younger Wong go from being a
QP student to senior accountant.
This, he believes, is down to his approach
as a mentor and his ability to take a back seat
at the right time. “After working for a period
of time he had learned so much, so there was
no need to keep a close eye on him. I had
to change my mentoring style to let him be
more independent and make sure that he
could solve problems by himself,” Kenny
Wong explains.
Brian Wong says his mentor
– who has more than
a decade of ex-
March 2013 27

“ In the old days, we didn’t have such a
programme and it was not easy for junior
people to talk to their senior bosses.”
perience in corporate insolvency, financial
investigations and litigation support – was
particularly supportive during his first couple
of years at the firm when he was unsure
about whether pursuing a career in corporate
advisory was right for him. “Especially
as most graduates normally choose auditing
rather than corporate advisory, a specialist
area. Kenny has provided me with a lot of
advice… [now] I am pursuing my career in
this area.”
While being closely monitored by a mentor
brings added expectations of him, Brian
Wong says he can handle it. “That kind of pressure
is somehow positive. Kenny will have expectations
of me so that I can achieve better
Derek Lai and
Adrian Chan
results... That kind of relationship [involves] a
bit more pressure but I think it’s good.”
Mentorship is not just a one-way street.
Kenny Wong explains that the relationship
has real mutual value. “For me, I can improve
on how I can give instruction and how
I can efficiently understand people’s needs,”
he says. “I enjoy it, as long as I don’t get calls
at midnight,” he adds with a chuckle.
Derek Lai, Asia head of restructuring services
at Deloitte and an Institute member,
had been an inspiration to his mentee even
before he formally took him under his wing.
“Derek did a career talk at my university...
Previously I didn’t really know what was involved
in restructuring services. I was very
impressed by the exciting, challenging and
dynamic nature of the work of a company
doctor who rescues and restructures businesses,”
recalls mentee Adrian Chan, now a
senior associate in restructuring services at
the firm and an Institute member.
Their coaching sessions often run over
two hours with Lai sharing his wealth of experience
as a corporate liquidator and estate
administrator. (Lai was the estate administrator
of tycoon Nina Wang and pop singer
Anita Mui. He has also worked on many
high-profile insolvency cases, including
HMV, Macao Dragon and Fu Ji Food & Catering
Services.)
Lai says discussion topics do not have to
be strictly work-related. “We even talk about
private life,” he says.
“I appreciate Adrian is outgoing and
willing to get close to me,” Lai adds. “But
even with other juniors, I am willing to
have lunch with them, and do have lunch
March 2013 29

“ There’s a satisfaction in knowing that this
is a big help for an important individual in
making their career or life decisions.”
with them from time to time, during my
private time, such as at the weekend. This
benefits both my staff and myself,” says Lai.
“The motivation for me to do so is that it
makes me feel young again as young people
are energized.”
The best piece of advice Lai has given
him, Chan says, relates to what makes their
relationship work so well: good communication.
“Derek once said that if you don’t
communicate well with others, you have
a high risk of being misunderstood,” Chan
recalls. “Communication is very important
and he has been emphasizing this to me all
along in the last four years.”
Without having a structured mentorship
programme in place, Lai believes that
establishing the close relationship they
have now would have taken more time and
effort. “Nowadays, people are very lucky.
In the old days, we didn’t have such a programme
and it was not easy for junior people
to talk to their senior bosses.”
Stephen Weatherseed, managing director
at Mazars Hong Kong and an Institute
member, also agrees that the mentor has
much to gain from mentoring. “I am always
interested in getting to know people better
– especially of a generation some years removed
from my own,” he says.
Weatherseed meets or speaks to his
mentee, Joe Xu, now a partner at Mazars
in Shanghai, around once every three
months. “There’s a satisfaction in knowing
that this is a big help for an important individual
in making their career or life decisions,”
Weatherseed says.
While some younger professionals may
feel reluctant to open up to those in more
senior roles about certain issues, Xu notes
that Weatherseed has made it easy for him
to discuss anything.
“Stephen started the first conversation
and shared his experiences when we first
met last year,” says Xu. “He has successfully
managed to create a taboo-free, friendly
environment.”
For mentees, being keen and ready to
commit is a must. “They need to trust the
process,” says Weatherseed, “and only by
doing so will they get the most out of it.”
Stephen Weatherseed
and Joe Xu
March 2013 31

Success ingredient
Henry Mok
CFO and company secretary
Sparkle Roll Group
Luxury goods are no
longer just for China’s rich.
The expanding middleclass
appetite for the
good life is keeping
Henry Mok on the hunt
for attractive international
brands to distribute.
George W. Russell reports
Photography by Grey Chen
A OFSPA
BIT
lthough not everyone has 6.45 million Sparkle Roll is hoping to tap into that lucrative market. “The
yuan (HK$8 million) for a new Lam- number of rich families in China is growing,” says Mok. “China
borghini Aventador, Henry Mok insists has a fast-growing middle-class and fast-developing luxury goods
luxury goods are no longer just for China’s rich. For 200,000 or so distribution network and our company has a good chance to out-
yuan, aficionados of the high life could pick up a nice watch by Monperform.”tres DeWitt of Switzerland, and for only 5,000 yuan, consumers Sparkle Roll established itself in the Mainland through its
could treat themselves to a fine bottle of French wine.
Bentley car dealerships. It then added the Rolls-Royce and
All three products are in the rapidly expanding catalogue of Lamborghini marques. “Our management built up a big network
Sparkle Roll Group, a distributor of luxury goods in the Mainland of customers,” Mok says. In 2011, more Bentleys and Rollsof
which Mok is chief financial officer and company secretary. “The Royces – at least 300 of each – were sold from Sparkle Roll’s main
concept of luxury is quite affordable to many middle-class people,” Beijing showroom at 99 Jinbao Street than from any other outlet
he tells A Plus.
worldwide.
Sparkle Roll, founded in 2004, has ridden a luxury goods boom After some of its Bentley and Rolls-Royce customers decided
in China. According to some figures, sales of luxury goods in China they wanted a Lamborghini when the company began distributing
rose 7 percent in 2012 and PricewaterhouseCoopers has forecast the high-priced Italian sports car, Sparkle Roll soon learned that
that in 2015 the Mainland will overtake the United States as the people who bought fancy automobiles might be tempted to buy
world’s largest luxury goods market with expected annual sales of other bling. “We call it a cross-selling strategy among our customer
650 billion yuan.
base,” says Mok.
32 March 2013

RKLE
In 2011, more Bentleys and Rolls-
Royces were sold from Sparkle
Roll’s main Beijing showroom at
99 Jinbao Street than from any
other outlet worldwide.
In the past few years, the Hong Kong-listed company has signed
deals to distribute a number of Swiss watch labels (including Richard
Mille, Parmigiani and deLaCour), the French jewellery brand
Boucheron and several big names among Bordeaux vineyards, such
as Château Petrus and Château d’Yquem.
Most recently, Sparkle Roll has signed distribution deals with
Bang & Olufsen, a Danish maker of speakers and other pricey electronic
goods, and Royal Asscher Diamond Co., an Amsterdam jewellery
house. “All the brands are of very high quality,” says Mok.
A PLUS
Finding frills
As Sparkle Roll sees it, the luxury goods market is not just an art.
There’s a science at play, as well. When it comes to choosing which
brands to distribute, says Mok, “the sales team has to have a sense of
what the market will expect and what the market will not like. We
have to see what brand may be well received by our customers in future
and also consider the competition with other brands.”
Mok says the company strategy is based on intimate customer
relationships and constant communication. “Different customers
have different needs so there is communication with the customers
to consider their needs [to ensure] our sales team offers them the
right products,” he says.
Sparkle Roll’s sales units act as brand managers for the company
– and its customers. They keep in close touch with developments
from the brands themselves and pass that information to
potential customers. “They watch out for technology advancement
in, for example, the automobile industry or new trends in watch
design or technology,” Mok explains.
The company’s nine directors are principally responsible for the
selection of new business partners. “They have their own
vision about what will happen and select those brands,”
says Mok, adding that gut instinct plays an important part
in selection. “To be frank, there should be a kind of sense or
feeling, rather than just a systematic or scientific method.”
Many luxury brands have focused on the potential
of the China market. For some, like Italian shoemaker
Tod’s and American bag manufacturer Coach, almost all
their recent growth has been in China. That means many
companies beat a path to Sparkle Roll’s door.
“We welcome overseas foreign luxury brands to come to
China and, of course, we can help some newcomers and we
are happy to do so if we think the brand has a big future,”
Mok says.
He says luxury brands – no matter how good their
products – need to have a sensible China strategy. “I think
some of them may have difficulty in dealing with Chinese
culture and might not be dealing with their products and customers
efficiently.”
Rolling up experience
While Mok now relishes the luxury goods lifestyle – he is a fan of
Château Margaux, the premier grand cru Bordeaux wine and another
Sparkle Roll distribution acquisition – his introduction to the
high life was somewhat less impressive. A quarter of a century or so
ago, when Mok was a young accountant at Price Waterhouse, now
March 2013 33

Success ingredient
PwC, he was invited to sit in a Rolls-Royce. “I
didn’t like the kind of feel of it,” he confesses.
Mok grew up in Hong Kong in an accounting
family. His father was an accountant in a
law firm and his sister, Nesta, also followed
into the profession. (She is now financial
controller at digital broadcast technology
distributor DVN.) “Apart from accounting, I
also considered joining the banking industry
because it gives the impression of stability
and professionalism.”
After graduating from Hong Kong Polytechnic,
Mok joined Price Waterhouse and
remained there for six years. “It was hard
work but at that time probably less hard than
it is now,” he says. “But it was a lot of fun.
34 March 2013
Price Waterhouse provided a very good environment
for training.”
After acquiring his CPA qualification and
working in auditing and corporate advisory,
Mok left to become financial controller of
one of the largest toymakers in China and
Hong Kong. “My job duties were everything,”
he recalls.
That job spurred him to take a closer look
at industrial processes and he studied parttime
in Hong Kong for a master of science
degree in manufacturing systems engineering
awarded by the University of Warwick
in England. “I wanted to study manufacturing
production to broaden my knowledge,”
he says.
Mok later obtained a master of business
administration jointly from the University
of Manchester in England and the University
of Wales at Bangor. Despite such extensive
study, Mok’s passions lie in business. “I like
applications rather than academic theory
and I like to apply accounting and finance
theories to different businesses.”
He later joined SJM Holdings, the listed
holding company of Stanley Ho’s Macau
gambling empire. One of the high points of
his career was working on its initial public
offering. “That was the first casino listing in
Hong Kong and I was the qualified accountant
for the IPO,” he says with pride.
Mok became CFO of Sparkle Roll in Au-

gust 2010 after his time at SJM did much
to raise Mok’s profile in Hong Kong’s business
community. “I’d been in finance and
accounting for 25 years so my name might
have been recognized in some places. The
chairman of Sparkle Roll [Ivan Tong] called
me and asked if I was interested. I thought:
‘Rolls-Royce! That’s great!’ ”
Spreading sparkle
Despite the seemingly unlimited future of
luxury brands in China, Mok says his job
is not without its challenges. “I think one
is how to control the cash flow and inventory
levels,” he says. “Luxury goods have a
high value and we cannot keep too much on
Luxury world counts
on China demand
While annual growth in sales of luxury goods in Mainland China is still
strong, market observers are wondering if the pace will be less break-neck
in future years. Overall, luxury goods sales in China rose at a slower pace
last year than in 2011.
According to a recent report by Bain and Company, a consultancy in the
United States, luxury goods sales rose 7 percent last year, compared with
30 percent in 2011.
“The impressive double-digit growth rates we have witnessed
probably will not be replicated in the future,” says Daniele Zito, a Bain
consultant in Milan.
There are good reasons for a smaller growth spurt. First, China’s
economic expansion eased during 2012, with GDP rising 7.8 percent,
compared with 9.3 percent in 2011.
Second, a national campaign against extravagance, and increased
emphasis on thrift and prudence – particularly for public sector employees –
may have discouraged conspicuous consumption.
Such changes have hit the stock price of some luxury goods makers and
analysts are less bullish about the sector’s prospects. “We believe [these]
significant changes will send an alarm to the luxury sector,” says Dionne
Cheung, an analyst with Quam Securities in Hong Kong.
Additionally, the government’s proposed ban on the advertising of
certain luxury products, announced last month as part of its crackdown
against extravagance, may affect future sales.
These policies are alarming because China is an increasingly important
market for luxury goods makers in Europe and the Americas. A McKinsey
& Co. report released in December 2012 showed that Chinese consumers
accounted for about US$18.6 billion in worldwide luxury consumption, or
12.8 percent of the estimated US$145 billion global market that year.
An earlier PricewaterhouseCoopers report last year forecast that China
would overtake the U.S. as the world’s largest luxury goods market by
2015. “Half of luxury goods sales are made to customers in emerging
markets, led by China,” Nicola Anzivino, a PwC partner in Milan, noted in
the report. “[Retail] expansion is mainly driven by new openings in China.”
Some individual sectors, such as vehicles, reflected more modest
expansion. According to ChinaAutoWeek magazine, six major super-luxury
car marques — including the Bentley, Rolls-Royce and Lamborghini brands
distributed by Sparkle Roll Group – sold 5,557 cars in 2012, an increase of
12.8 percent over 2011, but far short of the 94 percent year-on-year growth
seen the previous year.
Although high-end sales and auctions of fine Bordeaux and Burgundy
moderated in 2012, China remains the world’s fifth-largest wine market,
with the equivalent of 155.4 million nine-litre cases sold in 2012. The
market expanded more than 24 percent last year, far outstripping growth in
other major markets. Sales of Bordeaux rose 55 percent by volume in 2012.
The watch market remains robust, with Hong Kong maintaining its
position as the No. 1 importer of high-end watches from Switzerland, by far
the largest source of luxury timepieces. The Mainland is the No. 3 export
destination, after the U.S. However, Swiss watch exports grew just 0.6
percent last year to total 1.65 billion Swiss francs (HK$13.72 billion).
Bain estimates that about 60 percent of luxury purchases by Chinese
consumers occur outside the Mainland, especially in Hong Kong and
Europe. The numbers of Mainland visitors to Hong Kong in 2012 increased
24.2 percent over 2011, according to the Hong Kong Tourism Board.
A PLUS
March 2013 35

Success ingredient
Unlike the West, where car showrooms
are often in grim industrial areas on the
city’s fringes, luxury goods in China are
sold in high-end neighbourhoods that
match the products.
hand – we call it possible impairment in value.
Cost issues include capital expenditure
and depreciation of showrooms and other
facilities.”
Unlike the West, where car showrooms
are often in grim industrial areas on the
city’s fringes, luxury goods in China are sold
in high-end neighbourhoods that match the
products. In Sparkle Roll’s case, that means
36 March 2013
luxury addresses in major city centres. Mok
says the cost of showroom leases can be a
major headache. “We have to negotiate with
the property owners and we try to engage in
long-term and stable leases.”
Mok has recently innovated with customer
relationship management software.
“We try to keep a good relationship with
our customers but we also use IT to reduce
our human resources.” The company employs
about 400 people, including a staff of
15 based in its Hong Kong office in the Sun
Hung Kai Centre in Wanchai.
As well as expanding its brand portfolio,
Sparkle Roll is looking at extending its geographical
reach. “At the moment it’s Beijing,
Shanghai and Tianjin but I think we are quite
interested in the coastal area around Shanghai
– Zhejiang province – or somewhere in Sichuan
or Wuhan in Hubei province.”
There are also plans to build the Sparkle
Roll name as an entity in its own right rather
than just as a brand vehicle. In 2011, the
company opened its Sparkle Roll Luxury
World mall in Beijing to house all its brands
(except cars) under one roof. A similar mall
opened in Tianjin in August 2012.

Last year, the company, in partnership
with the Ministry of Commerce, organized
an exhibition of all its brands – the Beijing
Sparkle Roll Luxury Brands Culture Expo
2012 Fall – to showcase its portfolio and invited
potential new partners to display their
wares and gauge public reaction. Luxpo, as
the company calls it, will be held again this
year.
One conclusion Mok has drawn is that
luxury is an individual concept, both remote
and within reach. “It means something very
different from what you normally experience
but it is still something that you can
enjoy.” He has changed his opinion about
Rolls-Royce cars, too, since that first encounter.
“I was 25. Young men do not understand
luxury.”
A PLUS
February 2013 31

Networking
38 March 2013

CLIMBING
OUT OF A
SOCIAL RUT
It’s not just what you know, it’s who you know that matters,
says the adage. Successful accountants tell Robin Lynam
how careers can be boosted with a little networking ability
Illustrations by Alan Ho
In accounting, as in all professions,
those who rise to the top tend to be
those who are good at their jobs.
That, however, is seldom all there is
to the story.
Successful professionals have usually
managed to build up a broad-based network
of contacts and connections, many of
whom have been instrumental in helping
them serve their clients, build their profiles
and enhance their reputations.
Of course, people who are merely good
networkers will not advance far as Hong
Kong Institute of CPAs members unless
they are also skilled professionals. How-
ever, there are probably more than a few
skilled accountants who are at a career disadvantage
because they are not also skilled
networkers.
“The accounting profession has a very
disparate range of services and a broad
range of people who are involved in that
space, some of whom are more introverted
by nature and others who are more entrepreneurial
and will be out every day
building connections,” says Keith Pogson,
a managing partner at Ernst & Young and
immediate past president of the Institute.
Pogson sees networking as an essential
part of social and professional life, and points
out that those two areas often overlap.
Some people, however, are naturally
better at it than others. “From experience,
accountants are generally singularly poor
at structured networking,” adds Rupert
Purser, a board member of the Asia Transformation
and Turnaround Association, a
group of professionals from business, law,
banking and accounting with a focus on
corporate restructuring.
Purser, an Institute member, says creating
opportunities for members to mingle
through social events, seminars and discussion
groups is a major focus of the association.
“Accountants at large interna-
March 2013 39

Networking
“ Training on communication
and marketing as well as
related soft skills is, in
my view, of great value to
accountants who have in the
past almost solely focused
on technical skills training.”
tional firms rarely have to hunt for work,
as it comes to them as statutory audit and
assurance through their international networks,”
adds Purser.
“Training on communication and marketing
as well as related soft skills is, in my
view, of great value to accountants who
have in the past almost solely focused on
technical skills training.”
Right place, right words
Extroverts obviously find it easier to work
a room, but their more reserved colleagues
need not necessarily be out of the game.
Successful networkers agree that the essential
skills can be learned. “I wouldn’t
suggest to anybody that the cocktail party
is the best place to build deep relationships,”
says Pogson. “You also need to get
involved in sitting on committees or bodies
and meeting the people in the room.
They will then help you meet other people
as well.”
Training in networking is an important
part of the path towards partnership at
Ernst & Young. “There are some fundamental
things,” says Pogson. “One is being in
the same place as the people you want to be
in your network. Two is having something
to say. We can all shake hands at cocktail
parties and say ‘nice to meet you,’ but if
40 March 2013
you want to form a lasting relationship you
need something a bit more substantial than
that to get them engaged. The third thing is
that you need to find a way of re-engaging
with them [after the meeting].”
Cocktail parties are only the most obvious
example of business networking activity.
William Lo, executive director of finance
at the Airport Authority and an Institute
member, lists participation in Institute activities,
public and social services, taking
out club memberships and participation in
social media as valuable areas for wouldbe
networkers to explore, in addition to attending
dinners and seminars.
“You must believe in the importance and
value of networking,” says Lo. “Start with
small circles such as friends, colleagues,
club members and so on, and treat people as
genuine friends.”
PricewaterhouseCoopers partner Kenneth
Wong has found his involvement in
both the Institute – as a committee member
and a member of the IT interest group – and
the Information Systems Audit and Control
Association, an invaluable foundation for
building a strong professional network.
Wong believes that the network he has
built up has improved both his effectiveness
and his professional standing. “Professional
services are provided by people, not
professional organizations, and networking
[can] open the door to talking to certain
highly regarded individuals.”
Being social, says Wong, helps raise your
profile within the profession. “Getting noticed
is a big advantage and a benefit,” he
says. “One should attend relevant business
and social events to help get your name
known and a reputation as a knowledgeable,
reliable and supportive person who
is useful. Another key advantage is having
positively motivated people around you.”
Connections can also be made and
maintained online through networks such
as LinkedIn and even Facebook and Twitter.
Successful networkers now tend to pay
a certain amount of attention to managing
their pages on the Internet.
Pogson also notes that if you are keen
to cultivate a potential contact, a Google
search for their name can supply a lot of
information that will make a conversation
with them easier to sustain when you meet.
While the Internet has obviously created
new networking channels, successful networkers
stress the importance of actually
going out and meeting people.
“No matter how powerful social media
is, face-to-face interaction is still important
and worthwhile to invest your time in,” says
Lo. “Don’t get the wrong idea that you are

DO...
TIPS FOR SUCCESSFUL NETWORKING
“Being interactive is one of the basic requirements for an accountant engaged
in advisory services, like myself,” says Eugene Ha, a partner at Grant
Thornton and a Hong Kong Institute of CPAs member. “Making connections
with clients, intermediaries and the wider business community is part of what
I do every day. It’s fortunate that I am quite a natural talker as well, with an
outgoing personality. Networking is in fact an enjoyable role to me.”
Here are a networking natural’s top tips for making new connections.
Be a good listener: Always listen
to what people say, and then
find the right time to join in the
conversation.
Maintain eye contact: This helps
show your respect for the person
that you are talking to and is also a
sign of self-confidence.
Always follow up: Continue to
engage with the people you have
met and avoid having only one-off
meetings.
Some research: Learn about the
potential connections you are
meeting through an Internet search.
Information about their experiences
and interests can help facilitate
good conversation.
DON’T...
Act shy: Try your best to sit
with people you don’t know
and maximize your networking
opportunities.
Be impatient: Networking is about
building a strong and long-lasting
relationship. Never interrupt
others’ conversations and always
stay alert with your tone and facial
expression.
Make a sales pitch at a networking
event: Always remember that it is for
relationship-building, or you could
turn people off.
Be extreme or get too personal:
Never criticize others’ views,
especially on cultural or religious
issues, or discuss your own personal
problems. People might remember
you for the wrong reason.
March 2013 41

very successful in networking if you have
hundreds or even thousands of ‘likes’ or
‘friends’ in the social media.”
Cocoon to social butterfly
Introverted accountants can take comfort
in knowing that often the first step of
getting out there is the hardest part – and
everything else usually follows naturally.
“Networking is great for people who are
not so confident,” says Wong. “I was one of
those when I started my career. It helps you
grow. You just need to get into it.”
A certain amount of preparation can
go a long way towards helping build the
necessary confidence. “Keep yourself up-
dated with news and topical issues in order
to have good icebreaking topics for going
into a natural conversation,” advises Eugene
Ha, a partner at Grant Thornton and a
member of the Institute.
“Always listen to what people have to
say first. If you are not comfortable with the
conversation, you can always move on to another
person. This is perfectly fine in a networking
event. Always be honest, never say
something that you do not actually know or
without a fact base.”
It is essential to be sincere, networkers
say. “I would be quite upfront and honest
with my views, and very disciplined in
keeping a record of those whom I think
would be useful contacts for future follow
up,” says Clement Chan, a managing
partner at BDO Hong Kong and an Institute
vice president.
“I would avoid saying things that I do not
mean, or giving out promises that I do not
intend to deliver as it will backfire on your
own reputation in the long run, particularly
considering the relatively small community
Hong Kong has.”
“Part of it is having the right values,”
agrees Pogson. “You are good for your word,
you believe what you say and you will work
with people in a certain way. You build credibility
over a period of time by being the person
that you are.”
“ You build
credibility over a
period of time by
being the person
that you are.”
March 2012 43

Hong Kong tax
New tax deductions for capital
expenditure on intellectual
property create controversy
Tracy Ho and Patrick Kwong explain how certain views taken by the
Inland Revenue Department in its DIPN 49 create issues for deduction
claims under a recently gazetted amendment
The Inland Revenue (Amendment)
(no. 2) Ordinance of
2011, which grants tax deductions
for capital expenditure
incurred on the purchase of three new
categories of intellectual property rights–
registered trademarks, copyrights and
registered designs – effective from the year
of assessment 2011-12, was enacted on 16
December 2011.
Under section 16EA added to the
ordinance by this new law, tax deductions
for the relevant costs would generally be
spread over five years, starting from the
year of purchase.
Apart from the new law, under the
existing provisions of section 16E, capital
expenditure incurred on the purchase of
patent and know-how rights is eligible
for a 100 percent immediate tax write-off
in the year of purchase provided that the
specified conditions are met.
In July 2012, the Inland Revenue Department
issued Departmental Interpretation
and Practice Note no. 49, stating its interpretation
and assessing practice in respect
of the new law. We discuss below some of
the views made by the IRD in the note.
Pending registration on date of acquisition
not qualified for tax deduction
The note states that patents, designs or
trademarks must be registered (in Hong
Kong or overseas) on the date of acquisition
before they can qualify for the tax deduction.
As a result, where a vendor’s registration of
the relevant patents, designs or trademarks
has not been successfully completed and is
only pending on the date of the transaction,
the costs incurred by the purchaser for ac-
44 March 2013
quiring the same will not qualify for any tax
deduction. This is the case even where the
purchaser has subsequently completed the
vendor’s application and has the relevant
patents, designs or trademarks register in
the purchaser’s name.
Only allow for the registration of
assignment in process
Nonetheless, the IRD recognizes that it takes
time to change the name of the registration
from the vendor to the purchaser after the
purchaser has acquired the relevant patents,
designs or trademarks. The note states that
the purchaser would be allowed the tax
deduction on the condition that:
(i) The relevant patents, designs or trademarks
have already been successfully
registered by the vendor with the relevant
authorities on the date of acquisition; and
(ii) The purchaser has already submitted
applications for registering the relevant
patents, designs or trademarks in their
name.
No registration requirement for copyrights
and know-how rights
There are generally no registration systems
in place for copyrights and know-how rights
in either Hong Kong or overseas. Therefore,
the law does not require that copyrights
and know-how rights have to be registered
before a tax deduction can be granted. The
note states that the IRD will examine the
relevant sale and purchase agreement in order
to ascertain whether the relevant rights
acquired are copyrights or know-how rights.
Use of an intellectual property right
where registration is territorial and
apparently only active exploitation of the
same is regarded as being “used”
Under both sections 16E and 16EA, tax
deductions will only be granted if a relevant
intellectual property right is used in the
production of profits chargeable to tax in
Hong Kong. Therefore, what constitutes
“use” of the relevant intellectual property
right is crucial for the tax deduction claims.
Example 5 of DIPN 49 as reproduced below
illustrates the issues highlighted.
Example 5 from DIPN 49
Company HK purchased a trademark at a
total consideration of HK$1 million, which
has been registered in Hong Kong and the
United States from a U.S. company.
The Hong Kong registered trademark
and U.S. registered trademark are valued
at HK$600,000 and HK$400,000 respectively.
In the year of purchase (i.e. Year 1),
sales of the branded goods were made to
Hong Kong customers only.
In the following year (i.e. Year 2), Company
HK set up a branch office in the U.S.
for sale of branded goods to U.S. customers.
The profits derived by the U.S. branch office
are chargeable for Hong Kong profits tax.
The table shows the amount of tax deduction
as stated in DIPN 49 that Company
HK can claim in respect of the trademark
registered in both Hong Kong and the U.S.
in Year 1.
The point to note from this example is
that a tax deduction for the purchase cost of
the U.S. registered mark would be denied
in Year 1 on the basis that the U.S. registered
mark was not used by Company HK, there
being no U.S. sales of the branded goods
made by Company HK in Year 1.

HK ®
Hong Kong
registered mark
Purchase
cost:
HK$600,000
There were sales of
the branded goods
in Hong Kong (therefore
“use” of the HK
registered mark).
Amount deductible:
HK$120,000
(HK$600,000 ÷ 5)
Year 1
US ®
U.S. registered mark
Purchase
cost:
HK$400,000
There were no sales
of the branded goods
in U.S. (therefore
no “use” of the U.S.
registered mark).
Amount deductible:
None
In Year 2, Company HK would be
granted tax deductions of HK$200,000 [i.e.
(HK$600,000 ÷ 5) + (HK$400,000 ÷ 5)] as
it made both Hong Kong and U.S. sales of
the branded goods in that year.
From this example, it appears that a
relevant intellectual property right would
only be considered by the IRD as being
“used” when it is actively exploited by a
taxpayer in the course of their own sales
or production operations, and that the
relevant use is territorial according to the
place of registration.
In particular, it is understood that the
IRD has rejected submissions made by
certain professional bodies that a relevant
intellectual property right can be
considered as being used by the owner
in a defensive sense. These submissions
argued that in the case of this example, the
owner can be considered as using the U.S.
registered mark to guard against infringement
in the U.S.
As such, these submissions contended
that the U.S. registered mark, used in such
a defensive manner, enables or facilitates
the owner exploiting the same mark, also
registered in Hong Kong, to produce profits
which are chargeable to tax in Hong Kong
in Year 1. Therefore, these submissions
argued that a tax deduction should also
be granted in Year 1 in respect of the cost
incurred on the purchase of the U.S.
registered mark. However, the IRD has
apparently rejected such argument.
Nonetheless, DIPN 49 states “[that
where] a taxpayer purchased a relevant
right which has been registered in 10
jurisdictions but he only used the relevant
right in four jurisdictions and claims for
deduction of the expenditure to acquire the
relevant right in respect of all the jurisdictions,
on the ground that the purpose of
purchasing the relevant right in the six
other jurisdictions is to protect the registration
of the relevant right in the four jurisdictions
where the relevant rights are used.
The IRD would accept the above claim only
if the taxpayer could provide substantive
and reasonable evidence to prove that the
relevant right registered in the six jurisdictions
has direct and actual impact on the
production of profits chargeable to tax in
Hong Kong.”
However, given the IRD’s rejection of the
submissions made by the professional bodies
mentioned above, it remains to be seen
what kind of other evidence the IRD would
accept for this purpose. It would therefore
be helpful if the IRD could elaborate and
give more guidelines on this point.
A PLUS
Commentary
The IRD’s views that (i) pending registration
of a relevant intellectual property right on
the date of acquisition would not qualify for
tax deductions and (ii) a relevant intellectual
property right would only generally be
considered as being used when it is actively
exploited in the course of the taxpayer’s
sales and production operations may be
controversial.
Commercially, the consideration paid
for the acquisition of a relevant intellectual
property right may be on a worldwide or
regional basis, including the vendor’s pending
registration of the relevant intellectual
property right in certain jurisdictions on the
date of the transaction.
Furthermore, in the initial years following
the acquisition, the purchaser, due
to various reasons, may not have sales or
production operations in certain jurisdictions
covered by the relevant intellectual
property right acquired.
It is to be hoped that the IRD can revisit
its views on the above controversial issues
and consider whether the new law can be
more liberally interpreted in favour of taxpayers.
If not, consideration may be given
to amend the new law to address the issues
so that the new law can better achieve its
stated objective of “promoting the wider
application of intellectual property by
enterprises and the development of creative
industries.”
Tracy Ho is tax location leader, Hong Kong and Macau, and
Patrick Kwong is executive director at Ernst & Young.
March 2013 45

124
TechWatch
The latest standards and
technical developments
Financial reporting
Institute comments on IASB exposure draft
The Institute made a submission to the
IASB on the IFRS 9 Chapter 6 Hedge
Accounting review draft. The Institute
expressed significant concern on a specific
proposed amendment in appendix B
application guidance paragraph B6.5.5,
which provided guidance on measuring
hedge ineffectiveness using hypothetical
derivatives. The Institute considered that
not all of the required due process steps
had been followed by the IASB as the
particular paragraph did not feature in the
exposure draft.
Paragraph B6.5.5 of the review draft
incorporated a proposal that a hypothetical
derivative, used to measure hedge
effectiveness, did not include features
in the value of the hedged item that only
exist in the hedging instrument (but not
the hedged item), to which the Institute
agreed. However, the paragraph went on
to imply that a hypothetical derivative
cannot impute a charge for exchanging
different currencies (often referred to
as “currency basis”) even though actual
derivatives might include such a charge.
This implied that currency basis is not a
component of the hedged item.
The Institute believed that the resulting
accounting, which required ineffectiveness
to be recognized (with the resultant
volatility in profit or loss), did not reflect
the economics of the arrangement. Thus,
the Institute hoped the IASB could address
the above concern prior to the release of
the final standard.
46 March 2013
Audit and assurance
Invitation to comment on IAASB
consultation paper
The Institute has issued an invitation to
comment on the International Federation
of Accountants’ IAASB consultation paper,
A Framework for Audit Quality, with comments
requested by 15 April.
Through the proposed framework,
the IAASB aims to raise awareness of the
key elements of audit quality, encourage
stakeholders to explore ways to improve
audit quality and facilitate greater dialogue
between key stakeholders on the topic.
The proposed framework describes the
input and output factors that contribute to
audit quality at the engagement, audit firm
and national levels. It also demonstrates
the importance of appropriate interactions
among stakeholders and the relevance of
various contextual factors.
The IAASB is seeking responses to several
questions set out in the consultation
paper, in particular, whether the framework
is clear, comprehensive and useful. In
developing the framework, the IAASB has
also identified, with the input of stakeholders,
a number of areas for consideration by
both auditors and other participants in the
financial reporting supply chain that may
benefit global audit quality.
Professional accountants
in business
IFAC guidance on principles for effective
business reporting processes
The IFAC professional accountants in busi-
ness committee has released the guidance,
Principles for Effective Business Reporting
Processes, which aims to help organizations
enhance their reporting processes
and discusses the key issues PAIBs need
to address when implementing effective
reporting processes in their organization.
At the heart of the new guidance are 11
key principles for evaluating and improving
business reporting processes, complemented
by practical guidance outlining
the critical arrangements that need to be
in place.
This guidance was written for all
organizations, regardless of their size or
structure, private or public, to address the
need for processes to producing highquality
reports.
HKEx review of listed issuers’ financial
reports
The Hong Kong stock exchange has
published a report summarizing key
observations and findings from its review
of 120 periodic financial reports released
by listed issuers between May 2011 and
September 2012.
Taxation
Tax treaty signed with Italy
Hong Kong signed a double tax avoidance
agreement treaty with Italy in January.
Inland Revenue Department
announcements
A press release highlights how a company
director was sentenced to nine
months’ imprisonment and fined a total of

HK$900,000 for tax evasion.
As the Tax Return – Individuals (BIR60)
will be issued in bulk on 2 May, taxpayers
are reminded to notify the IRD by 8 March
of any change of addresses.
Legislation and other
initiatives
First batch of subsidiary legislation under
new Companies Ordinance gazetted
The following five pieces of subsidiary
legislation for the implementation of the
new Companies Ordinance were gazetted
on 1 February and tabled in the Legislative
Council on 6 February for negative vetting:
• Companies (Words and Expressions in
Company Names) Order
• Companies (Disclosure of Company
Name and Liability Status) Regulation
• Companies (Accounting Standards
(Prescribed Body)) Regulation
• Companies (Directors’ Report)
Regulation
• Companies (Summary Financial
Reports) Regulation
Reminder to report correct addresses
in specified forms filed with Companies
Registry
The Companies Registry has issued external
circular no. 1/2013 to remind companies and
their officers of the statutory requirement
of reporting correct addresses in specified
forms filed with the Companies Registry.
However, the registry has also issued a
letter to remind users that, where clerical
errors are made in reporting information to
the Companies Registry, amended docu-
ments should be filed and not, for example,
notifications of changes in particulars.
Latest notices on anti-money laundering
and combating the financing
of terrorism
The following government notices and
publications in relation to combating
money laundering and terrorist financing
have been issued:
• GN 8258: An updated list of terrorists
and terrorist associates specified under
the United Nations (Anti-terrorism
Measures) Ordinance.
• GN 8259: An updated list of relevant
persons and entities specified under the
United Nations Sanctions (Afghanistan)
Regulation 2012.
• United States Executive Order 13224:
A PLUS
The list relating to “Blocking property
and prohibiting transactions with persons
who commit, threaten to commit
or support terrorism.”
For more background information on
the current law in Hong Kong relating to
anti-money laundering, see the Institute’s
Anti-money Laundering Bulletin 1, Requirements
on anti-money laundering, antiterrorist
financing and related matters, and
the supplement on suspicious transaction
reporting.
Please refer to the full version of TechWatch 124,
available as a PDF on the Institute’s website:
www.hkicpa.org.hk
March 2013 47

Tech Q&A
The Institute issued an exception to the consolidation requirements in
HKFRS 10 Consolidated Financial Statements, which is applicable to
a particular class of business that qualifies as an “investment entity.”
Could you provide details of this exception?
Under HKFRS 10 Consolidated Financial
Statements, reporting entities
are required to consolidate all
investees that they control (i.e. all subsidiaries).
During the development of that
standard, preparers and users of financial
statements suggested the introduction
of an exception for entities for which the
only business purpose is to make investments
for capital appreciation, investment
income, or both, and which evaluate the
performance of those investments on a fair
value basis. Such entities are commonly
referred to as investment entities.
In response to this, Investment Entities
(amendments to HKFRS 10, HKFRS 12
Disclosure of Interests in Other Entities
and HKAS 27 (2011) Separate Financial
Statements) was issued in December 2012.
These amendments include:
• The creation of a definition of an investment
entity;
• The requirement that such entities
measure investments in subsidiaries at
fair value through profit or loss in accordance
with HKAS 39 Financial Instruments:
Recognition and Measurement
(or HKFRS 9 Financial Instruments)
instead of consolidating them;
• New disclosure requirements for investment
entities; and
• Requirements for an investment entity’s
separate financial statements.
48 March 2013
The new requirements contained in the
amendments are principally concerned
with establishing whether an entity qualifies
as an investment entity. Paragraph
27 of HKFRS 10 states that an investment
entity is one that:
a) Obtains funds from one or more investors
for the purpose of providing those
investors with investment management
services;
b) Commits to its investors that its business
purpose is to invest funds solely
for returns from capital appreciation,
investment income or both; and
c) Measures and evaluates the performance
of substantially all of its investments
on a fair value basis.
The application guidance accompanying
HKFRS 10 requires an entity to consider
all facts and circumstances when assessing
whether it is an investment entity, including
its purpose and design. In this connection,
the application guidance describes
the elements of the definition in more
detail as follows:
The definition of an investment entity
requires that the purpose of the entity is
to invest solely for capital appreciation,
investment income (such as dividends,
interest or rental income) or both. An
investment entity may also participate in
the following investment-related activities,
either directly or through a subsidiary, if
these activities are undertaken with a view
to maximizing the investment return (capital
appreciation and/or investment income)
from its investees and do not represent a
separate substantial business activity or a
separate substantial source of income to
the investment entity:
a) Providing management services and
strategic advice to an investee; and
b) Providing financial support to an
investee, such as a loan, capital commitment
or guarantee.
One feature that differentiates an investment
entity from other entities is that an
investment entity does not plan to hold its
investments indefinitely; it holds them for a
limited period. Because equity investments
and non-financial asset investments have
the potential to be held indefinitely, an
investment entity shall have an exit strategy
documenting how the entity plans to realize
capital appreciation from substantially

all of its equity investments and non-financial
asset investments.
If an entity or another member of
the group containing the entity (i.e. the
group that is controlled by the investment
entity’s ultimate parent) obtains, or has
the objective of obtaining, other benefits
from the entity’s investments that are
not available to other parties (unrelated
to the investee), then the entity is not
considered to be investing solely for capital
appreciation, investment income or both,
and thus would not qualify as being an
investment entity.
An essential element of the definition of
an investment entity is that it measures and
evaluates the performance of substantially
all of its investments on a fair value basis,
because using fair value is more relevant
than, for example, consolidating its subsidiaries
or using the equity method for its
interests in associates or joint ventures.
In order to demonstrate that it meets
this element of the definition, an investment
entity provides investors with fair value
information and measures substantially all
of its investments at fair value in its financial
statements whenever fair value is required
or permitted in accordance with HKFRSs;
and reports fair value information internally
to the entity’s key management personnel,
who use fair value as the primary measurement
attribute to evaluate the performance
of substantially all of its investments and to
make investment decisions.
In order to meet this requirement, an
investment entity would:
a) Elect to account for any investment
property using the fair value model in
HKAS 40 Investment Property;
b) Elect the exemption from applying the
equity method in HKAS 28 (2011) Investment
in Associates and Joint Ventures
for its investments in associates and
joint ventures; and
c) Measure its financial assets at fair value
using the requirements in HKAS 39/
HKFRS 9.
In assessing whether an entity meets
the definition of an investment entity as
described in paragraph 27, the entity must
consider whether it has the following
typical characteristics:
a) It has more than one investment – an
investment entity typically holds several
investments to diversify its risk and
maximize it returns;
b) It has more than one investor – an
investment entity would have several
investors who pool their funds to gain
access to investment management
services and investment opportunities
that they might not have had access to
individually;
c) It has investors that are not related
parties of the entity; and
d) It has ownership interests in the form of
equity or similar interests.
The absence of any of these typical
characteristics does not necessarily
disqualify an entity from being classified
as an investment entity. However, it has
to provide additional disclosure required
by HKFRS 12 in stating its reasons for
concluding that it is nonetheless an
investment entity.
In addition to the above-mentioned disclosures,
HKFRS 12 has also been amended
to require disclosure of information about
significant judgments and assumptions the
investment entity has made in determining
that it meets the definition of an investment
entity; information on each unconsolidated
subsidiary; the nature and extent of any
significant restrictions of unconsolidated
subsidiaries to transfer funds to the investment
entity; and financial or other support
provided to unconsolidated subsidiaries
during the year where there wasn't a
contractual obligation to do so. Disclosures
are also required for any structured entity
that it controls.
The amendments are effective from
1 January 2014, with early adoption permitted.
This is one year later than the effective
date of HKFRS 10. However, the amendments
permit early adoption in order to
allow investment entities to apply the Investment
Entities amendments at the same
time they first apply the rest of HKFRS 10.
Send your questions and comments to
commentletters@hkicpa.org.hk. The standard setting
team will answer these questions in accordance
with its policy, posted on the Institute’s website.
March 2013 49

People on the move
The latest professional appointments from around the region
HLB
Basilia Wong
Director
Wong has extensive experience
in auditing private and listed
clients in different industries,
including construction, distribution, environmental
products, healthcare, manufacturing,
trading, non-profit organizations, property
investments and development. She also
has experience in auditing companies listed
in Singapore, the United Kingdom and the
United States.
Jacky Kwok
Director
Kwok has experience in assisting
Hong Kong and Chinese
enterprises in going public.
He has also worked on audit assignments
for licensed corporations regulated under
the Securities and Futures Commission and
companies listed on the Main Board and the
Growth Enterprise Market of the Hong Kong
stock exchange.
Ricky Chan
Principal
Chan has extensive experience
in dealing with audits of small-
and medium-sized enterprises
and listed companies. His broad industry
experience covers property investments and
development, manufacturing, trading, construction,
renewable energy and financial
services. He specializes in initial public offerings,
mergers and acquisitions, financial due
diligence and internal control reviews.
54 March 2013
Mazars
Thomas Chen
Partner and head of accounting
and outsourcing
Chen has extensive knowledge
in international and Chinese
accounting, consolidation, as well as tax and
business regulations. He has assisted a large
number of international companies to set up
their businesses in China and provided advisory
services to their business operations.
James Ye
Partner and head of
governance, risk, internal
control and compliance
Ye has more than 17 years of
experience in external and internal audit,
corporate governance, risk management,
and internal control advisory services. Prior
to joining Mazars, he worked for Shanghai
Municipal Finance Bureau and for leading international
accounting firms.
Andy Chan
Partner, audit and assurance
Chan has experience auditing
companies ranging from SMEs
to listed companies in Hong
Kong, the Mainland and overseas. His clients
are in a variety of industries, including manufacturing,
distribution, trading, club and business
centre operations and ship chartering.
Emilio Wang
Partner, audit and assurance
Wang has more than 12 years
of experience in CPA firms
and has deep knowledge of
international and Chinese accounting, tax
and business regulations. He has provided
audit assurance services to a large variety of
international companies including insurance
companies.
Tim Wei Yu
Partner, corporate finance
Yu is experienced in initial public
offerings, introductions and
reverse acquisitions, as well as
private corporate transactions covering fundraisings
(start-up to growth capital), acquisitions,
disposals and related due diligence and
financing. He has a proven track record of
transactions in China, Hong Kong and Europe
across a broad range of sectors.
RSM Nelson Wheeler
Desmond Chiu
Principal, audit and assurance
services
Chiu is experienced in auditing
listed firms in Hong Kong and
abroad. He also has extensive experience in
auditing companies that are engaged in legal
services, infrastructure, transport and logistics,
property development, telecommunications,
manufacturing and retailing.
Email your announcements to Lucid Wong at
lucid.wong@mandl.asia

Events
Your guide to courses, workshops and member activities
Business and
professional knowledge
Gender diversity in the
boardroom: the issues and
where to go from here will
highlight the numerous obstacles
that women face when climbing the
corporate ladder. The panellists will
also discuss the implications of the
amendments to the HKEx’s Corporate
Governance Code on board diversity,
which will take effect from 1 September.
CPD hours: 3
Language: English
Date: 5 March
Time: 2:00 – 5:15 p.m.
Financial accounting and
reporting
An introduction to restructuring
services will introduce different types
of restructuring services, explain the basic
concepts of restructuring and offer examples
of how to strike a balance among different
stakeholders.
CPD hours: 1.5
Language: English
Date: 6 March
Time: 6:30 – 8:00 p.m.
Internal controls system
and corporate governance
compliance for Hong Kong-listed
companies will provide a general idea
on how to build up and review an effective
internal controls system as well as a strong
corporate governance structure for a listed
company based on the requirements of the
Corporate Governance Code on Appendix 14
of the Main Board Listing Rules and Appendix
15 of the Growth Enterprise Market Listing
Rules updated in early 2012.
CPD hours: 3
Language: Cantonese
Date: 9 March
Time: 9:30 a.m. – 12:30 p.m.
Environmental, social and governance
factors of listed companies
in Hong Kong will outline part
of HKEx’s commitment to corporate social
responsibility, of which ESG is a part. ESG
reporting will be a recommended practice
applied to issuers with a financial year ending
after 31 December 2012.
CPD hours: 1.5
Language: English
Date: 11 March
Time: 6:30 – 8:00 p.m.
Financial controls in investment
banks will feature an overview of investment
banks’ core businesses and organization
structures and explain why internal
financial controls are so important, as well
as examine a rogue trader case study.
CPD hours: 1.5
Language: English
Date: 20 March
Time: 6:30 – 8:00 p.m.
Taxation
Cross-border transfer pricing
issues between China and Hong
Kong will discuss the latest updates,
current audit trends and the focus of the
tax authorities, provide real life examples of
cross-border controversies and offer practical
ways to manage risks and eliminate
double taxation.
CPD hours: 1.5
Language: English
Date: 13 March
Time: 6:30 – 8:00 p.m.
Hong Kong tax cases: recent
important developments will take
an in-depth look at recent landmark cases,
review the judgments and consider how the
courts’ decisions will impact the business
sector.
CPD hours: 1.5
Language: English
Date: 15 March
Time: 6:30 – 8:00 p.m.
China tax on fund remittances
will explain the tax costs when remitting
money out of the Mainland and related
issues, such as the documents required,
the types of reimbursements that can and
cannot be remitted and how to calculate
applicable taxes.
CPD hours: 1.5
Language: English
Date: 22 March
Time: 6:30 – 8:00 p.m.
Visit the Institute’s website for other programmes and
to enrol and pay online: www.hkicpa.org.hk
March 2013 55

Cycles of boom and bust are no surprise
to the denizens of Siem Reap.
Once the site of a sophisticated medieval
Hindu civilization, the city’s
economy was devastated by decades of war
and revolution in the 20th century.
Today, Siem Reap is a gem of world tourism,
albeit in a country that is overall one of the
poorest in the world. Cambodia has bounced
back from the Vietnam conflict of the 1960s
and 1970s, the subsequent revolutions, civil
war and genocide, to be one of the most touristdependent
economies in Southeast Asia.
Its main attractions are of course the globally
recognized temples known collectively as
56 March 2013
Business travel
Astounding Angkor
Travelzoo Asia Pacific CFO and Institute member Honnus Cheung visits the ancient
temple complex near the Cambodian city of Siem Reap
Angkor. They are the remnants of the capital of
the Khmer Empire, a civilization that emerged
in the 7th century and dominated much of the
region until its gradual subsumption by belligerent
neighbours in the 15th century.
The temple of Angkor Wat itself is the
jewel in the crown. This three-tiered pyramid
of carved stone, crowned by five towers,
was built between 1113 and 1150. The colonnaded
lower gallery is lined with bas-reliefs
showing stories from Hindu mythology.
The other must-see temple is Bayon, just
500 metres further on. Its 37 stone towers are
among the most immediately recognizable
images of the temples. Other notable temples
include Angkor Thom and its walls and moat;
Preah Khan, a former university; and the relatively
untouched Ta Prohm.
Some of the finest examples of architecture
are located away from the central complex.
Bakong, a prototypical but appealing
10th century sandstone temple dedicated to
Shiva, is 13 kilometres east of Siem Reap. Banteay
Srei, the pink “Citadel of Women,” is 35
kilometres northeast of Siem Reap and hardly
visited by tourists, yet its intricate carvings
can entrance a visitor for hours.
Because of the long timescale of the temples’
construction, as well as the distances
between them, there is no correct order in

Previous page: Bayon in Angkor
This page (from top): Angkor National Museum;
Banteay Srei facade; Kampong Phluk; Fish amok.
which to visit them. There is no public transport
around the complex so they are best seen by hiring
a car or tuk tuk, either directly or through a
hotel or travel agency.
The temples lie in Cambodia’s northwestern
province of Siem Reap, of which the city of the
same name is the capital. With about 175,000
people, Siem Reap is a tourist boom town with
an abundance of boutique hotels, high-quality
restaurants and shopping opportunities for
clothing, silk and other fabrics, ceramics, lacquerware,
carved stone and wood handicrafts
and silver and bronze goods.
Despite its decades of hardship and violence,
the area around Siem Reap has a surprisingly vibrant
natural landscape. Not far from the city is
Prek Toal Bird Sanctuary, an avian haven that attracts
bird enthusiasts from all over the world for
its colonies of pelicans, storks and the rare Oriental
darter. The sanctuary is on Tonlé Sap, the vast
lake that forms part of the Mekong river system.
However, the environment around the city
has to compete with rising economic activity
brought by tourism. Some traditional businesses
continue: Artisans d’Angkor, an elegant boutique
in the city’s Stung Thmey Street, has a silkworm
farm in Puok, about 20 minutes from Siem
Reap. Beng Mealea, a temple town 40 kilometres
away, is home to several small incense-making
operations.
Cambodian cuisine is often described as a
cross between Chinese and Thai food and is composed
of noodles, soups, salads and vegetables.
Meat, mainly chicken or pork, is often grilled or
stir-fried. Ginger, lime, Thai basil, galangal and
chillies are used extensively, though Cambodian
cuisine is not usually as spicy as that of its neighbour,
Thailand.
Cambodian cooking can involve the use of
ingredients not known outside the country, such
as slok ngor, a bitter herb used in fish amok, one
of the national dishes. There are also some exotic
delicacies, such as a ping (fried tarantula), red
ants with beef and basil, and grilled frogs with
sticky rice (a particular Siem Reap speciality).
For those seeking relief from the tourist
trails, temples and general chaos, Siem Reap has
established a notable café, bar and club culture.
On the unimaginatively nicknamed Pub Street,
formally Street 8 in the old city, there is a boîte
to suit every desire, from boisterous beer barns
such as Angkor What? and the Temple Club to
quiet upscale cocktail lounges.
Where to eat
• Cuisine Wat Damnak Classy Khmer
with French twist. Behind Wat
Damnak, between Psa Dey Hoy and
Angkor High School. 77-347-762.
• Jungle Junction Popular family restaurant.
Makara Street. 10-527-568.
• Le Grand Café Institution with quirky
service. In front of Psa Chas. 12-664-567.
• Marum Creative training restaurant.
Between Wat Po Lanka and Catholic
Church. 17-363-284.
• Viroth Upscale Cambodian cuisine.
Wat Bo Road. 63-761-720.
Where to stay
• Angkor Miracle Resort Spacious
new facility close to town. National
Road 6, Khum Sra Nge. 63-969-900.
• La Résidence d’Angkor Five-star
digs downtown. River Road.
63-963-390.
• Pavillon d’Orient Chic colonial
mansion. Road 60, near Psa Leu.
63-760-646.
• Pippeli Pensione Australian-run
boutique. 7 Wat Damnak.63-969-011.
• Raffles Grand Hotel d’Angkor Stylishly
lavish edifice. 1 Vithei Charles de
Gaulle, Khum Svay Dang.
63-963-888.
What to see
• Angkor National Museum Home
to thousands of artifacts. 968 Vithei
Charles de Gaulle, Khum Svay Dang.
63-966-601.
• Cambodia Land Mine Museum Eyeopening
displays. Highway 67, 7 km
from Banteay Srey. 15-674-163.
• Jayavarman VII Children’s Hospital
Donate and listen to a Saturday evening
cello concert. Oknha Hing Penn
(Street 61), corner of Psa Dek (Street
88). 23-428-009.
• Kampong Phluk Authentic fishing
village 13 km from Siem Reap. Kampong
Phluk.
• Siem Reap Shooting Gallery
Fire an AK-47 or throw a grenade.
Highway 67, Kbal Spean, on way to
Banteay Srey.
March 2013 57

Here’s to Jerez
Once limited to vicars and
the elderly, Sherry is trending
upwards, says Aloysius Tse
Sherry is a fortified wine of Spanish
origin that typically has a distinctive
nutty flavour. It takes its name from
Jerez de la Frontera, a town near Cádiz in the
Spanish region of Andalusia. Sherry is an
Anglicization of Jerez, as the wine is known
in Spain.
It is also produced in Portugal, Cyprus,
South Africa, Australia and the United States,
but Spanish producers have attempted to
pressure for the name sherry to be exclusively
used for the fortified wines of Spain. Since
2010, Australian producers of Sherry-style
wines have had to call their product “solera.”
Sherry’s association with Hong Kong is
due to its long popularity in the United Kingdom,
although it began to fall out of fashion in
the 1970s, perhaps because of its perception
as a favoured tipple of vicars, elderly women
and aristocrats.
The fact that Sherry has often been marketed
as a wine to be consumed at Christmas
does not help either. However, with
the increased marketing efforts of Sherry
producers, it has regained some of its former
glory. Exports to China (including Hong
Kong) soared from 12,638 litres in 2009 to
59,004 litres last year, Inmaculado Menacho
of the Consejo Regulador de las Denominaciones
de Origen Jerez y Manzanilla Sanlúcar
de Barrameda, the Sherry producers’ industry
body in Jerez de la Frontera, tells A Plus.
Once found only in Hong Kong’s upmarket
hotels, several types of Sherry are now
usually stocked in reputable wine stores and
supermarkets such as Oliver’s. This revival is
also due to recognition that the wine offers
very good value for money as well as being
extremely food friendly. Recent marketing
efforts have turned Sherries into trendy beverages
for Hong Kong’s younger generation.
58 March 2013
After hours
Grapes used for making into Sherry are harvested at a vineyard near Jerez de la Frontera
in Spain’s Andalusia region.
There are three white grape varieties
authorized for the production of Sherry: Palomino,
Pedro Ximénez and Moscatel. Palomino
is by far the most dominant, accounting for 95
percent of plantings in Jerez. It grows well on
albariza, the calcium-heavy, clay soil around
Jerez, producing a wine low in acidity and
varietal aromas. This makes it ideal because
neutral wine can be easily enhanced by the
Sherry-making style. The other two grape
varieties are used to make sweet Sherries.
A layer of yeast on the top of the developing
wine, known as flor, is essential to the production
of Sherry. Several different strains
of yeast make up flor, which requires precise
levels of alcohol, temperature and humidity.
Flor cannot survive in a wine with an alcohol
level above 15.5 percent by volume, and it
thrives in cool to moderate temperatures and
high humidity. Because of the different levels
of temperature and humidity of each bodega,
or wine cellar, the style varies among individual
producers. To keep the flor healthy, casks
are periodically topped up with fresh wine to
maintain the nutrients that the yeasts need to
survive.
Sherry is aged with the solera process – a
type of fractional blending – for a minimum
of three years. Once bottled, Sherries are
stable and will not evolve any new aromas or
flavours. Broadly speaking, Sherry is divided
into the following styles:
• Fino: Crisp and dry; yeasty and tangy.
• Manzanilla: Similar to Fino; lighter and
often with a distinctive salty tang.
• Amontillado: Amber-coloured, nutty and
complex; alcohol at 17.5 percent by volume.
• Palo Cortado: Halfway between a Fino and
an Amontillado; nutty, fresh and complex.
• Oloroso: Brown, rich and nutty; aromas of
sultanas and raisins.
• Pedro Ximénez: Viscous and sweet; tastes
like Christmas cake.
• Cream: Commercial blend based on Oloroso;
sweetened by the addition of naturally
sweet Sherries.
Prior to the introduction of age indications,
it was very difficult to tell from the label the
age or pedigree of the wine. This problem is
now solved by the introduction of the following
four official age categories. Only Amontillado,
Palo Cortado, Oloroso and Pedro Ximénez
can qualify for age-indicated status:
• VORS: Very Old Rare Sherry. Average age
of the blend is at least 30 years.
• VOS: Very Old Sherry. Average age of at
least 20 years.
• 15 years old: Average age of at least 15 years.
• 12 years old: Average age of at least 12 years.
Because Sherries do not benefit from further
ageing, they may be consumed immediately.
Bottles should be stored upright to
minimize the wine’s exposed surface area to
keep out any undesirable oxidation. As with
other wines, Sherry should be stored in a
cool, dark place.
Aloysius Tse is chairman of Bacchus Fine
Wines Group and a past president of the Hong
Kong Institute of CPAs.

Colour timing
Watches of different hues
make great accessories,
as Wendy Hu discovers
The release of the Pebble watch in
January was hailed as the first
real revolution in timepieces since
the digital display. Apart from its useful
Internet-connected apps, iOS and Android
compatibility and handy Bluetooth file
transfer capabilities, there was something
else special about one of the models. It was a
vibrant cherry red.
For those used to seeing only gold and silver,
stainless steel or black watches, the Pebble
was a welcome splash of colour. Despite
its undoubted utility, the Pebble resembles
more a computer peripheral than an aesthetic
triumph of horology.
Fossil Swiss, which will open a boutique in
Causeway Bay next month, plans to include
in its Hong Kong offerings timepieces with
cases made in the brand’s signature warm,
earthy rose gold. Several of the
timepieces feature a contrasting
trim on the dial and
hands to help the wearer
make that all-important
fashion statement.
Since 2004, Fossil has
owned the American
watchmaker Michele
MW, which has been
at the forefront of
bringing vibrant hues
to high-end fashion
watches through
its playful Tahitian
Jelly Bean range. These
zingy accessories range
from 38 mm to 40 mm and
feature Swiss chronograph
movements, stainless steel
cases and silicone “jelly link”
bracelets.
Roger Dubuis
Excalibur Table
Ronde
However, for those
seeking luxury colourful
relief for their wrists, a
number of leading marques
now offer models with contrasting
shades from all over the spectrum.
While some brighten up
traditional designs with a stylish
splash of tincture, others reinvent
the totality of chronographic architecture
and delve into the realms of
legend and fantasy.
Of course, colourful watches can also be
serious timepieces. Celebrate the coming of
spring with a Piaget Four Seasons collection
watch. The spring version features butterflies
in polished or gem-set gold fluttering
above a dial enhanced with flowers made
of pink and green mother-of-pearl marquetry.
The watch utilizes a Piaget 56P quartz
movement inside a 39 mm, 18-karat,
white gold case, set with 128 brilliantcut
diamonds. (Piaget has issued
complementary designs for summer,
autumn and winter.)
Red always makes a bold
statement – whether as a
dress, a pair of shoes or a
bag so why not a timepiece?
For the daring, the Jaeger-
LeCoultre Grande Reverso
1931 Rouge features
a bright red dial, combining
simplicity with brash statement.
Designed with a nod to the Art
Deco era and equipped with the
company’s manually wound Calibre
822 movement, the Rouge features a
large (46 mm) but slender (7.27 mm
thick) case.
For those seeking a more striking
level of ornamentation,
there is the Roger Dubuis
Excalibur Table Ronde, a
representation of Arthur, the
mythical English king, and his legendary
knights of the round table.
Twelve robustly sculpted knights
in handcrafted gold surround a
dial richly enamelled in green
and white. The RD822 automatic
movement is set in a 45 mm pink
gold case with a fluted bezel and
securely fastened with triple strap horns.
Beautifully coloured watches don’t have
to be ornate: look at the Omega Seamaster
Planet Ocean, equipped with the co-axial
calibre 9300/9301, and a sturdy, masculine
timepiece of great character. The innovative
column-wheel chronograph has 12-hour
and 60-minute counter hands placed on the
same sub-dial at 3 o’clock. It also has a central
chronograph seconds hand and a small
seconds hand on the sub-dial at 9 o’clock. All
this is presented in a bold 45.5 mm stainless
steel case with a matte orange aluminium
bezel. (There’s also matte black for the traditionalists.)
A matching orange rubber strap
can be fitted.
Another more subtle use of colour is
employed on the Panerai Luminor 1950 Rattrapante
8 Days Titanio, a sophisticated haute
horlogerie model featuring a split-second
chronograph – the rattrapante – with vertical
clutch and twin column wheels assembled
in the hand-wound P.2006 movement. The
hands are finished in distinctive Panerai
blue, creating a vibrant, sporty effect.
All of these luxury models bring a
broader palette to the wearer without compromising
on horological aesthetics or technical
brilliance.
Piaget
Four Seasons Limelight
Dancing Light
spring version
March 2013 59

Talk about a worrying metaphor.
On the day of writing this, I saw a
picture on the news of the Chinese
god of wealth protesting in Guangzhou over
unpaid wages.
Of course, I realized that it wasn’t the
real god of wealth, since I saw Cai Shen
down at my local shopping mall yesterday
and it seems unlikely he could have got to
the protest in Guangzhou the same day, given
the difficulty of moving in ankle-length
red robes.
Anyway, the whole idea is screwy. No one
expects to pay Cai Shen. The god of wealth
is an astonishingly large one-way outward
cash delivery conduit (the exact opposite of
my daughters).
But it got me thinking of others who
do the same thing. If a despot like Robert
Mugabe creates money with no strings attached,
you call it “printing money” and predict
economic doom. But if a Western leader
does it, you call it “quantitative easing” and
give him a round of applause. Strange, right?
Anyway, I’ve always thought that the god
of wealth’s operation felt like a tax-reduction
dodge, possibly arranged by some sort of association
of mythical characters. No joke:
this whole area of finance could have real
relevance. I was at a lunch where two small
businessmen (that’s the official phrase, but
one was medium-sized and the other was
door-jamb-squeakingly huge) were discussing
staff bonuses. One said that he planned
60 March 2013
Let’s get fiscal
Get your daily dose of Nury’s humour at www.mrjam.org
Money secrets of
mythical beings
Legendary figures keep society’s
cash moving all through the year,
says Nury Vittachi
to give them out as personal lai see packets
because staff would not be taxed on them.
The other said that if this were true, all bonuses
would be given out as lai see packets.
A third party at the table said that he had
looked up the relevant ordinance and there
were references to bonuses and dim yung,
which is a Cantonese term for “a little off the
top,” but no mention of lai see packets.
I did not contribute to the discussion but
quietly resolved to invest in lai see envelopes
massive enough to receive the sort of multimillion
dollar bonus that investment bankers
get. I shall call them lai see buckets.
Taking this issue further, it’s clear that
Santa Claus runs some sort of highly suspected
operation that involves no known
sources of income and massive flows of outgoings.
This is a ludicrous business model
used by nobody at all, except for Wikipedia,
YouTube, Amazon, Twitter, Instagram and a
thousand more of today’s best-known firms.
Santa’s smart. He lives at the North Pole,
which is a totally tax-free jurisdiction. If he
visits 200 countries on Christmas Eve, he
spends too little time in any of them to be
classified as a taxable resident. It’s hard to
avoid the conclusion that Santa is running
some sort of loss-leading business designed
to increase turnover for retailers and restaurants.
On related lines, one wonders about the
connection between Chang’e, the goddess
of the moon, and the snacks sold at vast ex-
“ Anyway, I’ve always
thought that the
god of wealth’s
operation felt like
a tax-reduction
dodge.”
pense in her name: moon cakes. How much
of this cash is repatriated to the moon? Zero.
This is probably a mistake. If profits were repatriated
to the moon, they would attract a
zero tax rate, since there is a curious shortage
of inland revenue inspectors up there.
Once moon cake makers realize this, they
will surely move their head offices to the Sea
of Tranquility with immediate effect.
Meanwhile, there’s only one mythical
person I know who actually insists on getting
something for her money. And that’s the
tooth fairy. She doesn’t pay a lot to her customers,
yet she ends up with a supply of highgrade
ivory. Now that’s a mythical creature
with a practical attitude.
Nury Vittachi is a bestselling author, columnist, lecturer and
TV host. He wrote the Institute’s first two storybooks, May
Moon and the Secrets of the CPAs and May Moon Rescues the
World Economy. A third, May Moon’s Book of Choices, was
published in 2012.