Flagship fashion - Hong Kong Institute of Certified Public Accountants

ISSUE 5 VOLUME 8 MAY 2012
HK$70.00
PLUS
• Smaller firms boost consulting
• Chinese angels take flight
• Get through long hours without
falling out or falling down
Flagship
fashion
Harvey Nichols CEO
Joseph Wan on leading
a British style institution

“ To support the
Institute in
promoting our
qualification
programme in
China, I have been
practising my
Mandarin skills
for the university
accreditation
ceremonies.”
President’s message
Meaningful plans
Dear members,
Last month’s annual away day was
fruitful, with the council spending
two days in Shenzhen to chart the
direction of the Institute and review
the budget for the years ahead.
To make our plans more meaningful, we
talked to many different constituents of our
membership and stakeholders before the away
day to get their views. These views informed our
discussions at the retreat, especially in regard
to the sixth five-year long range plan, which
will consist of strategies to strengthen our six
pillars – constitution and governance, qualification
and education, standards and regulation,
membership and thought leadership, mainland
and international, and communication and
branding. We also talked about introducing a
new goal concerning corporate social responsibility
– “making a difference in society” because
sustaining the world we live in is paramount.
The discussion among all those present was
very energized and constructive, and we have
set up working groups for the many areas that I
will update you on soon.
While we plan ahead, our existing work set
out in the last fifth long range plan keeps going.
One of the aims of the plan was to create
more specialist qualifications and designations
to support members as our profession grows
more sophisticated and the market demands
more of our skills. The advanced diploma in
specialist taxation introduced last month is but
one example of this.
Another area of interest among members is
forensic accounting. The informal forum for
professionals interested in this field set up in
2011 now has more than 540 members. To increase
support for them and elevate the quality
of forensic expertise in Hong Kong, it is time to
turn this into a formal interest group.
We made progress this month in our work
with the mainland when we received a delegation
from the Ministry of Finance to discuss
broad professional issues such as the audit of
H shares and their auditors, China-U.S. cross
country audit regulatory cooperation, and professional
indemnity insurance. We also talked
about issues with direct bearing on our members,
including mutual examination paper exemptions,
allowing our members who hold the
PRC CPA practising qualification to set up CPA
firms in Shenzhen, and simplifying procedures
for our members in applying for temporary licences
to provide audit services in the mainland.
To support the Institute in promoting our
qualification programme in China, I have been
practising my Mandarin skills for the university
accreditation ceremonies over the past few
weeks. Accreditation of accounting programmes
of the top mainland universities paves the way
for the best candidates to study the QP. Chinese
enterprises’ growing expansion overseas means
they need people with an international professional
qualification such as ours.
Lastly, I want to welcome our new members
who joined us in May. I am looking forward
to meeting the 1,600 new members who have
joined us over the past year at the cocktail reception
that is being held in their honour later
this month.
Keith Pogson
President
May 2012 1
COLIN BEERE

REGULARS
01 President’s message
06 Institute news
08 International news
12 Greater China news
FEATURES
SOURCE
44 Stock options
Tracy Ho and Patrick Kwong explain the Inland Revenue
Department’s new stance on deductions for share-based payments
46 TechWatch 114
The latest standards and technical developments
48 Tech Q&A
Your questions about standards answered
54 Events
A guide to forthcoming courses, workshops and member activities
LIFESTYLE
56 Business travel
Honnus Cheung takes to the streets of Taipei
58 After hours
George W. Russell on wine; Reno Ong on watches
60 Let’s get fiscal
Nury Vittachi conquers the revenue collectors
2 May 2012
CONTENTS
ISSUE 05 VOLUME 08 MAY 2012
16 All ears
The Big Four's consulting businesses post massive profits.
Now smaller firms vie to be heard. George W. Russell reports
22 Where angels tread
China's angel investors are taking flight and planting seed money
from Shanghai to Silicon Valley, George W. Russell discovers
26 Success ingredient
CEO Joseph Wan tells Jo Bowman why Harvey Nichols'
international expansion excludes mainland China
32 The price of power
China dumps solar and wind for nuclear and hydroelectric power.
But, for now, that means more coal, George W. Russell writes
38 When work takes over
Peak seasons for accountants spell long hours and short tempers.
Liana Cafolla looks at how to coexist with coworkers
22

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Disciplinary findings
Chan Wing-kui, CPA
Complaint: Chan was involved as a financial
controller of a company that was
preparing for a listing application with the
Hong Kong stock exchange at the time when
he joined the company. In 2007, he was
convicted of two counts of conspiracy to
defraud the shareholders and other parties
by inflating the turnover and profit figures
shown in the company’s published financial
statements following the company’s successful
listing, and to defraud a bank by applying
for a letter of credit when there was
no genuine underlying commercial transaction.
Chan was sentenced to imprisonment
for six years and three months. Chan admitted
the complaint.
Decision and reasons: Chan’s name shall
be removed from the register for a period of
five years. Chan shall also pay the Institute a
penalty of HK$100,000 and HK$30,000 towards
costs of the disciplinary proceedings.
The Disciplinary Committee took Chan’s
convictions, personal circumstances and
conduct during the proceedings into consideration
when making its decision.
Lam Man-sum, Albert, CPA (practising)
Hopkins CPA Limited
Complaint: Noncompliance with Hong Kong
Standard on Auditing 230 “Audit Documentation”
and Statement of Auditing Standards
510 “Principal auditors and other auditors.”
Hopkins audited the financial statements
of a listed company in Hong Kong
for the year ended 31 December 2008. Lam
was the managing director of Hopkins and
signed the relevant auditors’ report. The
Financial Reporting Council’s investigation
of the audit revealed that Hopkins had not
properly documented the nature, timing
and extent of the audit procedures performed
and the conclusion reached on its
review of the audit work carried by the auditors
of a material subgroup of the listed
company in accordance with HKSA 230 and
SAS 510.
Decision and reasons: Lam and Hopkins
were reprimanded and ordered to pay the
6 May 2012
NEWS
THE INSTITUTE
Institute issues 2011 quality
assurance annual report
Findings of practice reviews positive
The Institute published its 2011 quality assurance annual report last month,
detailing the findings from its practice review programme and professional
standards monitoring.
The practice review programme inspected the work of 180 audit practices,
while the professional standards monitoring scrutinized more than 80
published financial reports. The report noted that, as a whole, the practice
review findings were positive. Meanwhile, the findings of the professional
standards monitoring were satisfactory because a relatively small percentage
of cases required follow-up action or investigation. The report notes that the
application of some standards continues to be problematic but that companies
are making progress.
Practice reviews inspect the work quality of auditors and have two jobs: to
educate audit firms and to regulate them. Professional standards monitoring
looks at the financial reporting of listed companies and aims to improve
reporting quality for owners and management of companies, investors and
other stakeholders. The Institute believes high-quality auditing and reporting
are the bedrock of Hong Kong’s status as an international financial centre.
Technical bulletin for auditors at AGMs
The Institute has issued a guide for members acting as auditors who need
to respond to shareholders’ questions at listed companies’ annual general
meetings. Under the Hong Kong stock exchange’s revised corporate governance
code, effective from 1 April, the external auditor must attend the AGM of the
listed company that he or she has audited, to answer questions relevant to
the conduct of the audit and the content of the auditor’s report. Auditing and
Assurance Technical Bulletin 2 guides members on what to do at AGMs, but is
not a standard and members are advised to use their judgment. (See Tech Q&A
on page 48 for more details.)
Disciplinary findings (continued)
Institute a penalty of HK$35,000 and HK$29,200 towards the costs of the
disciplinary proceedings and pay the Financial Reporting Council HK$51,700
towards the costs of the investigation. When making its decision, the
Disciplinary Committee took into consideration the particulars in support of
the complaint, the nature of the breaches and the conduct of Lam and Hopkins
throughout the proceedings.
Details of the disciplinary findings are available on the Institute’s website:
www.hkicpa.org.hk

NEWS
INtErNatIoNal
IMF fears deleveraging by banks
will drag down European economy
Report warns of 2 trillion euro sell-off, lending curb
The International Monetary
Fund has warned that European
banks will shrink their balance
sheets by €2 trillion over the
next 18 months, which could
jeopardize financial stability
and economic growth in Europe
and beyond.
In its Global Financial
Stability Report, published on
17 April, the fund warned that
European banks would dump
almost 7 percent of their assets
by the end of next year. The IMF
expects most of the deleveraging
to come from sales of
securities and noncore assets.
However, it also sees the credit
supply shrinking by 1.7 percent
as banks curb lending to businesses
and households.
While acknowledging that
balance sheets needed to shrink
Tightening the International
Accounting Standards Board’s
IAS 19 directive will prevent
companies in Europe from padding
their earnings statements
with anticipated pension fund
returns that may never materialize,
according to Citigroup.
The new accounting rules
will also force corporations to
align the forecast rate of return
from their pension fund assets
with the discount rate used to
value future liabilities in their
profit and loss accounts.
8 May 2012
These factors will cut the
annual pretax profits of companies
such as Nestlé, Fiat, BT,
Siemens, Philips, Credit Suisse,
National Grid, BAE Systems, Michelin
and AkzoNobel by more
than €100 million, said Citi.
One of the hardest hit
companies is Alcatel-Lucent,
the French telecommunications
group, which could lose €780
million in profit, giving the company
a pre-tax loss of more than
€250 million in 2013-14.
In the United Kingdom, the
AFP AFP
José Viñals
after the financial excess seen
in the run-up to the crisis, the
IMF warned that the risk of a
“synchronized and large-scale
deleveraging” could spark financial
instability and hit economic
growth.
The fund said better policies
– such as a consideration of
more easing by the European
Central Bank and progress on
bank restructuring and resolution
– would prompt a smaller,
6 percent contraction in banks’
balance sheets, which would
boost euro area growth by 0.6
percent.
“The key is to recapitalize,
restructure and resolve,” José
Viñals, director of the fund’s
monetary and capital markets
department, told the Financial
Times, adding that banks that
were not viable had to be closed.
The fund notes that the degree
of deleveraging predicted
in the Global Financial Stability
Report is much larger than that
implied in plans submitted by
banks to the European Banking
Authority, as part of the authority’s
efforts to ensure all major
European lenders’ high quality
capital buffers amount to at least
9 percent of assets by the middle
of this year.
rule changes could cut earnings
by 28.8 percent at FirstGroup,
19.3 percent at Go-Ahead Group
and 12.2 percent at Stagecoach.
“The current IAS 19 accounting
requirement usually
flatters the earnings of
companies with large pension
schemes,” Neil Dawson, an
analyst at Citi, told the Financial
Times. “We do not think this
accounting change has been
widely factored into earnings
forecasts at this stage.”
“There will be a handful
World Bank
head to push
local context
New IAS 19 rule on pension returns to hit corporate profits
The World Bank’s president-elect
says he will take into account
cultural and social peculiarities
to ensure that the bank’s schemes
achieve the desired results.
“If we can focus on the evidence
of what is actually working
and adapt those evidence-based
interventions to a local context, I
think we can be very successful,”
Jim Yong Kim told the BBC.
Kim, the president of Dartmouth
College in the United
States, will succeed Robert Zoellick
on 1 July.
A doctor of medicine who has
chiefly occupied development
and health posts, Kim faced criticism
for his lack of financial or
business experience. Kim told the
BBC that his medical background
would help him in his new role:
“Physicians work on evidence.”
of companies that are heavily
impacted because [their pension
funds] are heavily invested
in equities,” Mike Smedley, a
pensions partner at KPMG in
London, told the FT.
KPMG said the rule change,
effective for accounting periods
beginning on or after 1 January
2013, was likely to wipe about
£10 billion from the annual
profits of companies in the U.K.,
where pension funds’ equity
holdings are a relatively high
40 percent.

India soothes fears its economy
is weakening, citing resilience
Mukherjee points to savings rate, large domestic market
Indian Finance Minister Pranab
Mukherjee has sought to allay
concerns over a slowdown in India’s
economic growth rate, saying
the Indian economy would
ride on strong fundamentals.
Mukherjee pointed out that
even though the latest gross domestic
product growth figures
show that India’s economy has
slowed, the country still remains
the second fastest growing economy
in the G-20 after China.
“In fiscal 2009, our GDP
came down to 6.9 percent but
very quickly we recovered in
next two years and it was 8.4
percent,” Mukherjee told a press
conference in Washington.
“Again it has come down to
6.9 percent [in fiscal 2012], but
the resilience and basic fundamentals
of Indian economy,
Japan could lose developed status: think tank
As its population continues to age
and shrink, Japan, the world’s
third largest economy, could lose
its developed nation status by
2050, according to an influential
think tank.
According to the Tokyobased
21st Century Public Policy
Institute, which is linked to
Japan’s powerful Keidanren business
federation, the country’s
shrinking workforce, caused
by a chronically low birth rate,
combined with lower savings
and investment rates, could see
AFP AFP
Pranab Mukherjee
which everybody recognize – a
high rate of savings and substantial
investment coming from the
domestic savings itself – clearly
demonstrates that the Indian
economy will grow at a faster
pace,” he added.
He pointed out important
factors – including a huge domestic
market, increased purchasing
power and a growing
middle class – would stimulate
the economy.
the country lose its cherished
developed nation status by the
middle of this century.
The report predicts that Japanese
gross domestic product will
slide to fourth, behind China, the
United States and India.
Calling for urgent labour market
reforms for women and the
elderly, as well as an implementation
of fiscal reconstruction, the
think tank warns that in the most
pessimistic scenario, Japan’s
gross domestic product will decline
an average of 1.32 percent a
Economists expect India’s
economy to pick up this year, although
more gradually than previously
thought, while average
inflation will be slower, giving
the Reserve Bank of India room
to cut interest rates by another
50 basis points during the fiscal
year ending March 2013.
“The deviation of growth
from its trend is modest,” the
bank’s governor Duvvuri Subbarao
said on 18 April, referring
to the 6.1 percent growth in the
quarter to December, the weakest
year-on-year pace in almost
three years.
“At the same time, upside
risks to inflation persist. These
considerations inherently limit
the space for further reduction
in policy rates,” Subbarao
added.
year from 2041 through to 2050,
to one-eighth that of the United
States and China.
If Japan addresses its economic
challenges and boosts its
female labour market participation
rate to that of Sweden’s by
2040, Japan could still be the
world’s fourth largest economy in
2050, said the think tank.
The report warned that unless
Japan introduces steep spending
cuts or higher taxes, public debt
could swell to nearly 600 percent
of GDP by 2050.
EU lifts
Myanmar
sanctions
European Union foreign ministers
announced the EU would
drop trade sanctions against
Myanmar to reward the Asian
nation’s democratic progress.
On 23 April, the EU suspended
most of the bloc’s sanctions,
for an initial period of one year.
Gemstones, timber and important
metals can now be imported
from Myanmar into the EU.
European companies are
expected to vie with Asian rivals
for stakes in a range of industries,
from oil and gas to timber,
tourism, telecommunications
and banking.
David Cameron, who in
April became the first British
prime minister to visit Myanmar
since the country won
independence from Britain in
1948, said he backed the lifting
of EU sanctions.
However, exiled activists are
urging the United States to press
for further reforms before lifting
U.S. sanctions. Washington is
soon expected to allow investment
in Myanmar in sectors such
as agriculture, tourism, banking
and finance.
On 2 April, the Myanmar
government held its first foreign
exchange auction at which the
U.S. dollar was traded at 818
kyats. The official rate had been
8.5 kyats.
The exchange rate auction
is part of a “managed float” that
requires Myanmar’s central bank
to intervene to keep the exchange
rate between certain limits.
May 2012 9

Groupon sued by investor
for accounting errors
Groupon, the online coupon website, is being
sued by a shareholder for misleading investors
about its financial results and concealing weak
internal controls. According to a complaint filed
in a Chicago court, the company overstated revenue,
issued materially false and misleading
financial results, and concealed how its business
was not growing as fast and was not nearly
as resistant to competition as it had suggested.
Groupon declined to comment.
Quality of some Canadian
audits seen as inadequate
Canadian auditing firms need to improve the
quality of their work to assure they are fulfilling
their responsibility to protect investors
against corporate fraud and sloppy accounting,
according to a watchdog’s report. The Canadian
Public Accountability Board’s annual
review, which examined 245 audits conducted
by 88 firms, found that 20 to 26 percent of
audits by Big Four firms fell short of Generally
Accepted Auditing Standards.
Russian bank chief
calls for IFRS adoption
The chief executive of Russia’s second largest
bank wants all the country’s lending institutions
to adopt International Financial Reporting
Standards to reduce costs. Andrey Kostin, CEO
of VTB, said the requirement for consolidated
financial statements according to Russian Accounting
Standards is unnecessary. He said
RAS-based financial statements are not representative
for the VTB Group as they do not reflect
the results of the entire group.
IRS may allow
virtual audits
The United States Internal Revenue Service is
testing a pilot programme for taxpayers to engage
in video conferences with case workers to
help them deal with their tax problems and plans
to expand the technology to audits. Nina Olson,
the IRS national taxpayer advocate, had recommended
that the agency set up the technology
to overcome persistent problems with its correspondence
examination process.
10 May 2012
NEWS
INtErNatIoNal
U.K. to sharpen teeth of
auditing watchdog
Two panels to replace seven operating bodies
The British government said it would strengthen the Financial Reporting
Council, the country’s auditing and corporate governance watchdog, by giving it
more punitive powers. Laws come into force on 2 July to give the FRC’s board the
ability to impose bigger fines for poor quality audits.
The FRC’s seven operating bodies, including the Accountancy and Actuarial
Discipline Board, will be replaced by two committees – one focusing on codes and
standards and the other on conduct.
“The reforms will simplify the FRC’s overcomplicated structure and
enable it to mobilize all the expertise in its operating bodies to strengthen the
United Kingdom’s voice in international debates on corporate governance and
reporting,” the chairwoman of the FRC, Baroness Hogg, told Reuters.
The FRC has been criticized for its overly light penalties. The largest fine
imposed has been the £1.4 million penalty against PricewaterhouseCoopers for
not reporting that JP Morgan had mixed clients’ money with the bank’s own.
The FRC said a public consultation would begin later this year on how big fines
should be. The Accountancy and Actuarial Discipline Board has said that auditing
firms should be fined a percentage of annual turnover, with a similar approach
based on total remuneration to punish individual partners.
The Institute of Chartered Accountants in England and Wales said the FRC
must demonstrate it can still champion high standards. “This will be especially
important at a time when there are substantive reforms being considered in
Brussels and other markets around the world,” the ICAEW said in a statement.
Internal auditors should take on
bigger role, PwC study finds
A majority of businesses want internal auditors to do more to monitor risks,
according to a recent PricewaterhouseCoopers study. The report included a
survey in which 65 percent of respondents said they want internal audit to play
a more substantial role in monitoring risks. The most requested area for more
involvement was data privacy and security.
The global survey polled 870 chief audit executives as well as 660 other
executives, audit committee chairs and board members.
The study also showed just 45 percent of those surveyed were happy with
the way that the most critical risks to their businesses were being managed.
PwC said the findings show executives rank advice on risks and controls very
highly. The report recommends internal auditors think and act strategically
and simplify reporting with reports clearly linked to business risks.
Barriers could prevent internal auditors from adding risk management
to their duties, PwC warned. The report said there can be cultural and
organizational resistance to accepting internal auditors as something more
than police on the lookout for policy offenders.

NEWS
GREATER CHINA
Hong Kong exchange plans yuan
futures launch for third quarter
Also seeks expansion to fixed income, currency
Hong Kong Exchanges and
Clearing plans to launch yuan
futures in the third quarter, a
move that would help investors
hedge their exposure to the currency
and solidify Hong Kong’s
status as the main centre for
offshore yuan trade.
The exchange announced
the plan on 19 April, just one day
after HSBC issued the first yuandenominated
bonds in London
in a big move to advance the
city of London’s push to become
a major centre for the offshore
yuan trade itself.
Charles Li, the exchange’s
chief executive, said the plan
“reflects our desire to support
Hong Kong’s development as
an offshore RMB centre.” He
called the initiative part of the
12 May 2012
Charles Li
exchange’s “strategy to expand
beyond equities and equityrelated
derivatives.”
The futures contract will
require delivery of U.S. dollars
by the seller and payment of the
final settlement value in yuan
by the buyer at maturity. The
contract will be quoted in RMB
per U.S. dollar, with the trading
fees charged in yuan.
The exchange has scheduled
a market readiness test in June
and invited applications from
potential market makers for the
futures.
“We have been working with
our participants and information
vendors to prepare our derivatives
market for RMB-traded
products and look forward to
introducing our derivatives
market’s first RMB-traded
futures product,” Calvin Tai, the
exchange’s head of trading, told
the South China Morning Post.
The exchange also said it
would seek to expand business by
venturing into fixed-income, currency
and commodities products.
Meanwhile, Shanghai’s exchange
has also been preparing to come
out with dollar-yuan futures.
People.cn raises 1.4 billion yuan in Shanghai IPO
The online business of People’s
Daily, the Chinese Communist
Party’s official newspaper,
raised 1.4 billion yuan in a
Shanghai initial public offering,
nearly three times the amount it
initially sought.
People.cn Co. sold 69.1
million shares at 20 yuan each,
the bottom of its latest price
range, according to a Shanghai
Stock Exchange filing. The sale
values the company at 5.5 billion
yuan, or 46 times earnings,
4.5 percent higher than the
industry average ratio of 44,
according to the filing.
AFP
The Chinese website operator
will have 276 million shares
outstanding after the share sale
and an initial market capitalization
of US$872 million.
People.cn’s advantages include
its exclusive government
news content and stable advertising
revenue from companies
including government-related
entities, the company said in
an IPO prospectus released in
January.
The company plans to use
part of the proceeds to fund
a 527 million yuan upgrade
of its networks and content,
more than a decade after rivals
such as Sina Corp. and Sohu.
com Inc. went public in the U.S.
Sina is valued at 32.1 times its
2011 earnings and Sohu has a
price-earnings ratio of 11.4 for
its U.S.-listed shares.
State-owned carriers China
Mobile Communications Corp.,
China United Network Communications
Group and China
Telecommunications Corp.
are among the shareholders
of People.cn, according to the
prospectus. People’s Daily owns
about 80 percent of the unit’s
stock.
Developers
go bankrupt
amid cooling
At least two Chinese property
developers filed for bankruptcy
last month, highlighting the
growing pressure on cashstrapped
small players that are
struggling amid Beijing’s efforts
to cool the housing market.
Guangdeye Property Development
in Shunde, southern
Guangdong, declared bankruptcy
on 18 April because of its inability
to repay debt, according
to the People’s Court in Shunde.
The private firm has not
undertaken new projects since
completing a commercial
project, Shunde Commercial
City, in 2008, when it reportedly
started encountering financial
difficulties.
Meanwhile, Hangzhou
Jinxiu Real Estate, which was
developing a luxury serviced
apartments on the West Lake,
has filed for bankruptcy, according
to Hangzhou’s news website,
zjol.com.
Smaller developers, particularly
those with just one project
on hand, are finding it tough
to generate cash flow from
property sales, as housing prices
plummeted after the introduction
of restrictions on purchases
to curb speculation.
“In the absence of speculators,
prices immediately collapsed
in these suburban areas
and put developers’ cash flow
under pressure,” David Ng, a
property analyst at Macquarie
Equities Research, told the
South China Morning Post.

ZTE seeks more cash with
6 billion yuan in bond sales
Company aims to remain competitive in smartphone market
ZTE will gain more cash to compete
with Apple and Samsung
Electronics in the smartphone
market as sliding borrowing
costs allow it to push ahead with
a record sale of debt.
China’s second largest maker
of phone equipment plans to sell
as much as 6 billion yuan of bonds
maturing in five years or less.
The yield on the company’s
4 billion yuan of bonds due in
January 2013 has fallen to 4.09
percent from a record high of
6.22 percent in October. Telecommunications
companies
globally pay an average of 3.35
percent, Bank of America Merrill
Lynch indexes show.
ZTE’s cost of borrowing
almost doubled last year as Bei-
jing curbed lending and raised
interest rates three times to rein
in inflation, contributing to a 37
percent decline in the Shenzhen-
based company’s 2011 profit.
Its funding costs rose to 1.37
billion yuan from 728 million
yuan, as net cash inflow from
financing activities increased
to 13.4 billion yuan, more than
triple the 4.3 billion yuan from
2010, chief executive officer Shi
Lirong said on 29 March.
The manufacturer’s planned
bond sale would help reduce
fundraising expenses by about
100 million yuan annually,
Rena Qin, a spokeswoman said.
ZTE said it also proposed
to apply for renewal of credit
lines with the Bank of China
for 23 billion yuan and the
China Development Bank for
US$5 billion. “This is an annual
process,” Qin said.
Central bank plans liquidity boost as GDP eases
The People’s Bank of China
said it will boost liquidity in the
financial system as the nation’s
top four state-owned banks
reported a huge net deposit
outflow in the first two weeks
of April.
“Policies will be loosened to
boost the economy at the right
time,” an official at China’s
central bank said on 18 April.
“Measures will include issuing
more reverse repurchase agreements
and lowering deposit
requirements for banks.”
China’s GDP growth eased to
8.1 percent in the first quarter,
the slowest in three years.
A laptop equipped with 4G
wireless technology by ZTE.
The company has been pushing
into overseas markets.
AFP
Liao Qun, chief economist at
CITIC Bank International, told
The Standard that “time for the
reserve requirement ratio cut is
ripe,” and that such a measure
is expected in the coming
months.
The mainland’s four biggest
state-owned banks reported net
deposit outflow of more than
1 trillion yuan in the first two
weeks of April, the 21st Century
Business Herald reported.
New loans given by the four
banks narrowed during the
same period, the daily quoted
an official at China Construction
Bank as saying.
In Hong Kong, former
chairman of the China Banking
Regulatory Commission
Liu Mingkang warned local
banks to carefully examine the
accounts of mainland enterprises
before lending them any
money.
“Cash flows of a lot of developers
are negative,” Liu said
at a forum in Hong Kong on 19
April.
As selling prices and transaction
volumes of residential
units continue to decline, mainland
developers are expected
to face a harsher time in the
second half, he warned.
Haitong sells
HK$13 billion
in share sale
Haitong Securities Co. raised
HK$13 billion in Hong Kong’s
biggest first-time stock sale since
December, according to a Bloomberg
report.
The company, already listed
in Shanghai, will sell about 1.23
billion shares at HK$10.60 each,
near the bottom of a range marketed
to investors, Bloomberg
reported.
The shares were originally
offered at HK$10.48 to HK$11.18
each, according to the prospectus
for the offering.
Haitong’s share sale is about
40 percent bigger than the
total amount raised in first-time
offerings in Hong Kong in the
first quarter, according to data
compiled by Bloomberg.
Initial share sales in the city
are off to their slowest start to a
year since 2009, with investors
steering clear of new equity even
after the benchmark stock index
advanced 14 percent.
Haitong is the third-largest
publicly traded Chinese brokerage
with a market value of 82.9
billion yuan.
The country’s two largest brokerages
are Citic Securities Co.
in Beijing and GF Securities Co.
in Guangzhou. Citic raised about
HK$1.3 billion in September in a
public stock offering.
The offer price for Haitong
values the company at about 1.31
times its estimated 2012 book
value, compared with 1.65 times
for Citic Securities’ Hong Kongtraded
shares.
May 2012 13

SFC launches consultation
on rules for IPO sponsors
Hong Kong’s Securities and Futures Commission
will launch a public consultation that
seeks to toughen rules for banks sponsoring
initial public offerings, including holding them
liable for faulty deal documents. The move is
likely to draw strong opposition from foreign
investment banks worried about increased
risk in a market that has been the world’s biggest
for listings in two of the past three years.
Mainland home prices
down year over year
Prices of newly built homes in 70 Chinese cities
in March were down 0.4 percent on average
from a year earlier, according to The Wall
Street Journal. For the first time, prices were
down in a majority of the surveyed cities,
38 out of 70. By contrast, in February home
prices were up 0.17 percent from a year earlier,
with declines in 27 cities. Prices in March
were down by an average of 0.29 percent
from February.
Crude oil futures contract
planned, says regulator
China plans to offer a crude oil futures contract
this year, Guo Shuqing, chairman of the
China Securities Regulatory Commission, told
the Xinhua news agency. The move could
help domestic companies cope with fluctuating
oil prices and increase China’s influence
over global pricing. China could become
the third largest crude futures market in the
world after the United Kingdom and the United
States, Guo added.
Yuan trading band against
U.S. dollar up to 1 percent
China widened the yuan’s trading band
against the dollar for the first time since 2007,
an increase to 1 percent from 0.5 percent. In
April, regulators raised quotas for foreigners
buying onshore stocks and bonds to US$80
billion from US$30 billion and increased the
amount of yuan held offshore that can be invested
locally. Chinese officials pledged in a
five-year plan running to 2015 to keep loosening
controls on currency flows.
14 May 2012
NEWS
GREATER CHINA
Hong Kong-listed Chinese
companies, auditors fall out
Disagreements over financial data blamed
At least six disputes have broken out this year between Chinese companies listed
in Hong Kong and their auditors, amid worries that another round of accounting
scandals is about to come to light. More than a quarter of Hong Kong-listed Chinese
companies that started trading in 2010 have since lowered their forecasts.
“Investors have been concerned: Are these companies accurately portraying
themselves?” Kevin Pollack, a fund manager at Paragon Capital in New York, told
Bloomberg. “There has absolutely been collateral damage. Unfortunately, having
big name auditors and bankers behind a company doesn’t guarantee it’s free of
issues.”
The questions being asked about the accuracy of financial reporting and
the quality of due diligence by IPO underwriters have evaporated the investor
enthusiasm that encouraged a record number of Chinese companies to go public in
stock markets outside China in 2010. The negative sentiment has also contributed
to making the first quarter for global first-time offerings the weakest since the
depths of the financial crisis.
Four Hong Kong-listed mainland companies – including Boshiwa International
Holding, a Harry Potter apparel licensee – said their auditors resigned this year
because of disputes over financial data or other key information. Two other
companies reported that their auditors needed more time to verify earnings.
Deloitte China faces tough choice in
SEC subpoena of documents
Deloitte Touche Tohmatsu said on 11 April that if the Securities and Exchange
Commission in the United States forces the firm to respond to a subpoena
requesting documents from its Shanghai unit, its employees in China could face
jail time and the unit could be dissolved by Chinese authorities.
The documents in question relate to potential accounting fraud by one of
Deloitte’s former clients, but the firm’s ongoing legal battle with the SEC carries
broader implications for accounting and law firms with operations in the
mainland.
If the U.S. district court rules in favour of Deloitte, it could curtail the ability
of the commission to gather evidence in China. If the SEC prevails, firms could be
forced to choose between crossing U.S. regulators or Chinese authorities, a point
hammered home in court papers filed by Deloitte.
“If [Deloitte’s Shanghai unit] were to defy the [China Securities Regulatory
Commission’s] command and produce the work papers directly to the SEC, the
severest of sanctions could be imposed on DTTC [Deloitte Touche Tohmatsu
CPA] and its personnel: China regulators would be authorized to dissolve the firm
entirely and to seek prison sentences up to life in prison for any DTTC partners and
employees who participated in the violation,” the Deloitte documents said.

Consulting
16 May 2012

ALL
EARS
With the Big Four posting huge growth with their consulting practices,
smaller accounting firms are looking at ways to set up and expand
their own. George W. Russell reports
Illustrations by Tree Tree Tes
In the ballroom of Hong Kong’s
JW Marriott Hotel one rainy
April morning sat the future of
Big Four consulting. Ninety-six
business students – 70 percent
of them accounting majors –
from 23 countries were making their cases
for merging Geely with Volvo, expanding
TripAdvisor to include house rentals and
bed-and-breakfast places, or hastening Qantas’
expansion into China.
The students were in Hong Kong at the invitation
of KPMG, which conducts an annual
contest for promising students – and possible
recruits. The ninth KPMG International
Case Competition was being held in Asia for
the first time, reflecting the eastward shift of
global markets. The purpose of the competition
is to allow the firm to evaluate their ability
to analyse, says Lynsey Bennington, who
coordinates the competition.
Bennington, a global recruitment manager
with KPMG International in Toronto,
says the students are watched particularly
for their aptitude in advisory work. “Yes,
they could definitely be the consultants of
tomorrow,” she says.
Many potential recruits see a career at
an accounting firm as something more than
auditing. “I would like to be advising in financial
services,” says Gary Au, a University
of Hong Kong business and accounting
student who represented Hong Kong at the
KPMG event.
At the firms, consulting and advisory
covers a broad range of services, from financial
transactions assistance to management
consulting to strategic advice. And as they
embrace or acquire new areas of expertise,
the new skills are usually folded into consulting
departments.
“The whole field of sustainable devel-
opment and corporate social responsibility
is opening up new avenues of consulting
services,” says Ken Morrison, managing
partner in Hong Kong at Mazars, a midtier
firm that has been building its consulting
practices. “People development consulting
is also an area gaining increased interest
among clients as they engage in a war for
talent,” adds Morrison, who is a member of
the Hong Kong Institute of CPAs.
Big Four firms are finding that consulting
is their fastest growing sector globally as
it makes up from a fifth to more than a third
of their global revenues, according to the
firms’ most recent financial statements, depending
on how it’s counted. (Grant Thornton
and BDO, the next largest firms, report
similar proportions.)
Those figures are rising. KPMG’s revenues
from consulting rose 14.8 percent
in 2010-11, compared with audit and tax
May 2012 17

Consulting
revenue growth of 5.8 percent and 13 percent
respectively. At Deloitte, consulting
grew 14.9 percent in 2010-11, while the
separately categorized financial advisory
services rose 15.1 percent. By contrast, revenue
from tax advisory increased just 5.2
percent and audit and related services by
only 4.7 percent.
The other firms recorded similarly impressive
increases, and that’s just from consulting
units within the accounting firms. In
addition, Big Four firms can cross-sell consulting
products and services across their
sub-brands. Deloitte, for example, has an
advisory practice and a financial services
advisory practice as well as a stand-alone
consulting company, Deloitte Consulting.
Back from the brink
Only 10 years ago, the consulting business
was in disarray. Disgraced by the Enron
collapse and the dismantling of Arthur
Andersen, accounting firms had their consulting
business seriously restricted by the
Sarbanes-Oxley Act in the United States.
The new laws limited the types of consult-
18 May 2012
ing services auditors provide to companies
they audit.
Accounting firms found it was no longer
so easy to cross-sell their consulting services
“The whole field
of sustainable
development and
corporate social
responsibility
is opening up
new avenues
of consulting
services.”
and – also keen to distance themselves from
the negative sentiment – started spinning
and selling off their consulting arms. IBM
absorbed PwC Consulting in 2002 after it
was renamed Monday for just two months.
KPMG spun off its consulting unit into Bearing
Point. Ernst & Young sold its consulting
unit in 2000 to the French information technology
services company Cap Gemini (now
Capgemini), and Accenture had split from
Arthur Andersen just before the accounting
firm’s collapse.
While Deloitte Consulting was briefly
known as Braxton, it returned to its original
name in 2003, reflecting the fact that the U.S.
spotlight on consulting had already begun to
dim just a year after Enron.
Moves by the Big Four back into the consulting
business have not gone unnoticed by
regulators in Europe. Last year, the European
Commission proposed that auditing firms be
banned from providing consulting services to
companies they audit, or even be banned altogether
from consulting.
One reason is the accounting firms’ grip
on consulting services in certain sectors. Big
Four firms account for 45 percent of the financial
services market worldwide, according
to Big4.com, an online accounting recruitment
and social network based in New York.
While McKinsey & Co., Boston Consulting
Group, Bain & Co. and Booz & Company
dominate the headlines in consulting, their

evenues are, in many cases, behind the consulting
revenues of the Big Four. McKinsey
& Co. posted about US$7 billion in total revenues
in 2011, while KPMG made US$7.54
billion from its consulting practice and PwC
posted US$7.5 billion.
Size isn’t everything
The profitability of consulting hasn’t been
lost on smaller accounting firms. Mazars in
Hong Kong says consulting services already
represent as much as 50 percent of annual
turnover. “While tax and audit services are
continuing to grow, the areas of consulting
services are growing far more rapidly,” says
Morrison.
RSM Nelson Wheeler, meanwhile, has
established two new departments in Hong
Kong, covering risk management and forensic
accounting. “Consulting is just a word,
really,” says Wong Poh Weng, managing
partner of RSM Nelson Wheeler and an Institute
member who has overseen his firm’s
recent expansion from core tax and audit
work. “It can mean valuation, it can mean
market research.”
Wong says the expansion resulted from
pressure from a partner who wanted to see
faster growth in the firm and from clients
who wanted broader services. “It was very
much a reaction to demand,” he says.
“The resources
available within
the Big Four enable
them to bring
expertise in more
specialist areas...
However, in the
areas where we can
and do compete,
we believe we do
so as equals.”
Morrison acknowledges that the Big
Four have an advantage over midtier firms
in consulting. “The main challenges we
would face is the extent or range of our
services,” he says. “It is probably true that
the resources available within the Big Four
enable them to bring expertise in more
specialist areas than a firm like Mazars.
However, in the areas where we can and do
compete, we believe we do so as equals.”
Wong, on the other hand, says midtier
firms have two advantages. “We like to
think we can give clients better partner or
director attention,” he says. “With 35 partners
and directors and 250 staff, issues can
be resolved quickly.” The other advantage,
he adds, is better pricing – usually. “We can
price better unless a Big Four firm wants the
job and charges nothing,” he says.
The ultimate prize for consulting practices
is the mainland and midtier firms see
long-term opportunities. “There is huge
potential for market development in the
consulting business in China,” says Pammy
Fung, a director of Crowe Horwath in Hong
Kong and an Institute member. “Many clients
are looking for assistance in corporate
governance, organizational training, financial
consulting and human resources and
May 2012 19

ecruitment services to enhance their development
in the coming decades.”
Acquisition sprees
While all the Big Four firms are keen to develop
their consulting practices, observers
say Deloitte and PwC are the ones to watch
because of their aggressive acquisition focus.
“What has emerged was that PwC and
Deloitte are associated with a wider range
of services outside conventional management
consulting than KPMG and Ernst &
Young,” says Fiona Czerniawska, cofounder
and managing director of Source, a London
research company specializing in the management
consulting market.
In December, PwC bought Australian IT
consulting company Avantis Information
Systems. Also last year, PwC acquired business
management company Implementation
Specialists and health care consultants
JRS Partners in the United States. In 2010,
PwC paid US$378 million for Chicago company
Diamond Management & Technology
Consultants.
Deloitte has also been on a buying spree,
especially in emerging technologies. This
year it acquired Übermind, a creative agency
focused on mobile technologies, and Oco,
which specializes in data analysis. It also
recently bought Intrasphere Technologies, a
global drug safety and regulatory consulting
business.
“Deloitte and PwC have growth strategies,”
says George Beaton, chairman of Beaton
Consulting in Melbourne, which tracks
consulting in Asia Pacific. “They’re experimenting
and testing the water to see how
far they can stretch their brands.”
Clients say the Big Four firms are offering
more diversified services than ever
before. “They are leveraging the brands
they have built up through their accountancy
practices to offer other services,”
says Claire Sonnenberg, a managing director
at BNY Mellon in Boston, who manages
the bank’s relationships with consultants.
“We’re almost always using the Big Four for
something these days.”
May 2012 21

Venture capital
22 May 2012

Like their ethereal namesakes,
angel investors
can appear when all
other hope is lost. While
they have saved numerous
start-ups in developed
economies, China has been off their
regular migratory paths – until relatively
recently.
A lack of access to regular capital, burdensome
regulations and a shortage of
funds for research and development can
stifle innovation, but such an environment
can sometimes create the right conditions to
summon angel investment.
The proportion of angel investors – who
tend to invest smaller sums and use their
own money – is unknown, and international
benchmarks such as the Pricewaterhouse-
Coopers’ annual MoneyTree report, which
measures cash-for-equity investments by
venture capitalists, exclude angel funders.
In comparison, private equity deals were
valued at US$217.6 billion globally in 2011, a
7 percent decline over the previous year.
In China, private equity deals totalled
US$20 billion in 2011, a 48 percent increase
WHERE
ANGELS
TREAD
Angel investors are emerging from China
to invest domestically and internationally.
George W. Russell reports on how accounting
firms help connect investors with companies
looking for seed money
Illustrations by ER Grafix
over the previous year. Again, how much of
this sum is angel investment is not easy to
measure. Mainland angel investors are usually
secretive.
Eva Ip, a managing director at Ernst &
Young in Hong Kong who tracks Chinese
venture capital and private equity trends,
says there’s little hard data about angel investment
in the mainland or Hong Kong,
but adds that anecdotal evidence suggest it
is growing fast. (The other Big Four firms
wouldn’t venture any comment.)
Technology entrepreneurs say it is the beginning
of an angel investor boom in China.
“This population is just getting started,” Cyril
Ebersweiler, a French venture capitalist
based in Shenzhen, says of Chinese angels,
who are slowly organizing themselves to invest
more efficiently.
There are possibly millions of people
on the mainland who have extra money to
invest and who are looking for the next big
thing, say experts. “This entrepreneurial
spirit is the key to the future of investment in
China,” says Ip, who is a member of the Hong
Kong Institute of CPAs.
Formal networks are emerging, such as
the Angelvest group in Shanghai, while accounting
firms have also joined the bandwagon
with initiatives such as the Baker Tilly
Hong Kong Business Angel Programme.
“While small- and medium-sized enterprises
receive little support from the government,
there are still some avenues that
start-up companies can turn to in the private
sector,” says Beatrice Fan, a corporate
affairs officer at Baker Tilly.
Furthermore, Chinese angels are investing
beyond the mainland. Eugene Zhang,
cofounder of TEEC Angel Fund, a Chinafocused
investor group in California, has
launched a new incubator called Innospring
to help Silicon Valley entrepreneurs tap into
funds from mainland China. “Innospring’s
focus is on encouraging American and Chinese
start-ups to expand beyond their home
countries,” says Zhang.
Others are investing in start-ups from
Korea to Ireland, while New Zealand’s first
angel fund set up by mainland investors
kicked off last month. Chinese angels are
also using their business and personal networks
to connect start-ups with global financial
institutions such as Citibank.
May 2012 23

Venture capital
Technology focus
Technology-related start-ups attract the
bulk of angel funding. “Most of the enterprises
we invest in are related to technology,
media or telecommunications, and the
majority of those are Internet or mobilerelated,”
says David Chen, a cofounder of
Angelvest. “But there are other exciting sectors,”
he adds.
Biotechnology is also emerging as a core
interest area for Chinese angels. That could
be a boon for biomedical companies in the
United States, which have long depended on
angel investment – investment that dried up
after 2008.
“Biomedical companies have long relied
on government grants and venture capital
to finance innovation, but funding sources
are shifting and companies will need to
adapt to a new reality,” says Tracy Lefteroff,
U.S. life sciences partner at PricewaterhouseCoopers
in San Francisco. “Angel
investors will continue to be an important
source of funding.”
Consumer retail and education start-ups
can also attract interest, says Chen, formerly
a managing director of the Hina Group, a
mainland investment banking and private
equity company. “We recently invested in a
bilingual kindergarten in Shanghai,” he says.
The main hindrance for Chinese angels
is official interference. Xu Xiaonian, a pro-
24 May 2012
fessor of economics and finance at the China-Europe
International Business School in
Shanghai, told a March business forum in
Guangzhou that government agencies are
vying for regulatory power over private equity,
including angel funds, which until now
has gone without oversight.
Xu lamented that if officials were successful,
only angel investors with government
connections would be approved to
disburse funds, thus throttling innovation.
“What the government can do is to meddle
less,” Xu told the forum.
Not all involvement by Chinese officials
is negative, however. Shanghai Municipality
has had an active angel investment
programme for several years. Last month,
Shenzhen’s municipal government said it
would encourage angel funds as part of an
overall financial innovation package.
How they work
Angel investors – Angelvest, for example – aim
to provide early-stage capital to companies
with significant operations. Members
generally make individual investments
from US$10,000 to US$50,000 per deal,
and US$100,000 to US$500,000 as a group.
Angelvest members also typically seek a board
seat on the companies they’ve invested in.
Zhang says Innospring boasts its own
in-house accountants and bookkeepers to
help incubating companies, but accounting
firms have sponsored angel investment programmes
in a number of countries.
Grant Thornton, for example, has helped
angel investors in Canada for the past few
years. “Our corporate sponsorship of angel
investor exposes us to the up-and-coming
business visionaries that will lead Canada’s
economic future,” says a spokeswoman for the
firm in Toronto. “This exposure is great for our
business.”
In Hong Kong, the Baker Tilly programme
is a not-for-profit initiative that connects
aspiring entrepreneurs with experienced
business people. “So far, the programme has
helped numerous new and existing SMEs
secure angel funding up to US$2 million,
while offering investors attractive investment
returns,” says Fan.
The Baker Tilly programme works in
cooperation with the British Chamber of
Commerce. “Hong Kong has a strong entrepreneurial
culture but, surprisingly, there are
few organizations supporting the fundraising
requirements of early stage companies,”
says Neil Orvay, chief executive officer of
Asia Spa and Wellness and chairman of the
chamber’s business angel committee.
Baker Tilly helps vet candidates and gives
accounting and professional help. “We normally
receive between 25 and 30 applications
for each event of which only four make

it to the final breakfast presentation in front
of the investors, so it is very helpful having
Baker Tilly’s input in the selection process,”
Orvay says.
Like Angelvest’s programme, Baker Tilly
offers small sums to start-ups. Most applicants
to the Baker Tilly Hong Kong Business Angel
Programme are seeking US$500,000 to US$1
million. “This amount is insignificant for
many venture capitalists and private equity
investors, where interest starts at US$10 million
to US$20 million,” says Orvay.
“We have a very strict vetting process,” says
Chen at Angelvest. Submissions are emailed
or lodged via Angelvest’s website and reviewed
by a panel. Angelvest members select
eight favourite submissions each month. The
top eight are invited to present a 10 minute
pitch to Angelvest and submit to a further 10
minutes of questioning. Angelvest members
form a due diligence team for each submission
and successful pitches receive funding within
seven weeks of their presentation.
The Baker Tilly Hong Kong Business Angel
Programme runs a similar online process on
its website. Every few months, the investment
committee prepares a shortlist and these companies
present their business plans.
Angels among mortals
Individual angels are usually more risk seeking
than private equity groups and expect higher
rewards, but not all angels keep their wings.
“Given the early stage of businesses seeking
angel funding there is much higher risk and
the return is often binary – the investor either
makes a huge return or loses everything,” Orvay
adds. “Most angel investors are looking for
at least 10 times their investment, while venture
capitalists and private equity investors target
returns that might range from three times
to six times their investment, depending on the
maturity of the business.”
Xu Xiaoping of Zhenfund, one of the
best-known angel investors in China, has
moved into mainstream private equity. He
teamed up in December 2011 with private
equity group Sequoia Capital China to set up
a US$30 million fund. They plan to invest in
about 100 companies within two years, with
each investment ranging from US$100,000
to US$300,000. About US$3 million of the
new fund has already been invested, Xu told
China Daily.
Meanwhile, Lee Kai-fu, chairman and
chief executive officer of Innovation Works,
last year launched a €22.5 million joint venture
seed fund with Sequoia. Lee has said he
believes there are huge opportunities for angel
investment in China, given the low startup
costs. An angel investor in the mainland
can buy a 20 percent stake in an early-stage
company for about €225,000, whereas a similar
stake in the United States would cost six
times as much.
In China, the angel investor network remains
handicapped by its highly fragmented
nature, a recent Ernst & Young report noted.
However, once Chinese angels become organized
and focused, the investment climate in
the mainland could change dramatically.
Chinese entrepreneurs, and investors, are
very much aware that at least two of the world’s
most admired companies – Apple and Google –
were first borne on the wings of angels.
May 2012 25

Success ingredient
Joseph Wan
Group chief executive, Harvey Nichols
26 May 2012

FASHION
FORWARD
Photography by Marcus Oleniuk
Joseph Wan leads one of Britain’s most
respected names in luxury retailing.
He tells Jo Bowman how Harvey
Nichols is reaching out to the world’s
wealthy and fashion-savvy, but staying
out of mainland China – for now
May 2012 27

???????????
Success ingredient
ith its
opulent flagship store in London’s Knightsbridge,
Harvey Nichols is on par with Harrods
as a byword for luxury European shopping.
Indeed, Harrods is only a short walk
away, along with Jimmy Choo, Manolo
Blahnik, Armani, Tod’s, Gianfranco Ferré,
Prada and a long list of other top names.
Shopping for luxury in this part of the
world is a serious business.
Joseph Wan, impeccably dressed in an
Ermenegildo Zegna suit and wearing one of
his collection of Tom Ford ties, insists he’s no
fashionista. But Harvey Nichols’ group chief
executive does know what makes the appeal
of an upmarket retailer endure, while hemlines,
colours and collar styles come and go.
When the Hong Kong-born Wan joined
Harvey Nichols 20 years ago, it was a single,
loss-making store with a rich, century-old
heritage but a day-to-day business that had
become lost in the diverse operations of its
previous owner, the Burton Group (now the
Arcadia Group run by the retail magnate Sir
Philip Green).
Snapped up by a Hong Kong conglomerate,
Dickson Concepts, and with Wan at the
28 May 2012
helm, the brand has grown into a profitable
and thriving international network with seven
stores in the United Kingdom and Ireland,
and another six around the world.
In Hong Kong, a new store opened in
Pacific Place in late 2011, in addition to an
existing store in the Landmark. The international
footprint will change shape again this
September when a new store is due to open
in The Avenues, the largest shopping centre
in Kuwait.
The resurrection and strategic expansion
of Harvey Nichols, Wan says, has come
through the application of many of the
skills – and attention to detail – that he honed
as a CPA. “The key to the turnaround and con-
tinuing development of Harvey Nichols was
one word: focus,” he says.
Wan immediately moved the company’s
office out of the Knightsbridge store, liberating
1,850 square metres (20,000 square feet)
of retailing space at a stroke. “Previously, the
company was part of a big high-street retail
group and was too small within the group to
merit enough attention; it was noncore so it
was ignored. There was no strategy whatsoever.”
Products, merchandising, the store environment,
business processes and incentive
schemes for staff all were given an overhaul.
Even today, Wan remains close to the
day-to-day goings-on on the shop floor. On
the day that A Plus catches up with him, he’s

about to travel to the northwest of England
to check in with staff at the Harvey Nichols
store in Manchester.
In 1996, five years after Dickson Concepts
took over Harvey Nichols, with the
company back in the black and with credible
plans for expansion, Wan took the company
public, with an initial public offering on the
London Stock Exchange that was more than
16 times oversubscribed. There was something
of a trend for high-end names to list at
that time: Donna Karan floated on the New
York Stock Exchange the same year.
While profits were robust for Harvey
Nichols in the years to follow, other clothing
retailers fared less well as the Asian finan-
cial crisis began to bite and as strong British
retailing names like Marks & Spencer reported
weak results. By the late 1990s, Wan
says, analysts were downgrading small-cap
companies and fashion retailers because of
general market sentiment rather than company-specific
factors.
Harvey Nichols was twice downgraded
within a 24-month period, and was trading
below its IPO price. “We felt very disillusioned,”
he recalls. “What’s the point of all
this effort with compliance to maintain the
listing?” The decision to take the company
private was made in 2003.
Wan now oversees the company from the
top floor of a new, purpose-built office block
A PLUS
in Chiswick, west London, at the same desk
he inherited from his predecessor two decades
ago. Many of the pictures on the walls,
of the Knightsbridge store in days gone by,
also came with the job. A photo of his two
daughters is one of the few personal touches.
His CPA and chartered arbitrator certificates
are also displayed. “It’s certainly not luxurious
but I don’t need that,” he says.
Some like it haute
The view from his office over this low-rise
and largely residential pocket of London is
a long way from the book shop in Ice House
Street, Central, where a teenage Joseph Wan
mulled over his future career path. “Even at
the age of 14, I was thinking about going into
the legal profession or accountancy,” he recalls.
“I remember picking up a lot of books
about career guidance, and reading about
CPAs in America – all about it being a very respected
profession with high integrity.”
Ever practical, Wan opted to do his article
training in Britain, given the colonial ties
with Hong Kong and the relative ease of travel
and transferring qualifications compared
to the U.S. After qualifying, he returned to
Hong Kong to join Peat Marwick.
“I was very lucky,” he recalls. “I was given
a lot of exposure to different things.”
“Initially, I did the standard work on auditing
of hotels, motor distributors, finance,
deposit-taking companies, all these kind of
things, tax compliance work, tax claiming
and a little bit of debt restructuring,” he says.
“I was really covering a wide range of business
activities.”
May 2012 29

Success ingredient
30 May 2012

“We’ve established a strong
reputation in the United
Kingdom, particularly in our
London flagship store, with
our regular customers who
are high-end individuals
who love fashion... They
know very well that when
they come in, what they see
every season is the best of
the best of many brands all
housed under one roof.”
Wan quickly progressed through the
ranks, and was appointed to work on three
high-profile government investigations into
white-collar crime, which resulted in prison
sentences for those under scrutiny. Partnership
at Peat Marwick beckoned.
However, Wan’s progression at the firm
was thrown off track in 1987 with a job offer
from Dickson Poon, whose company was at
the time a Peat Marwick client. “It was a very
big step indeed, and a very, very difficult decision...
but Mr. Poon made me an offer that I
could not refuse,” he says.
Poon, at that time, was on the brink of acquiring
the European designer goods company
S.T. Dupont. “I was very interested in
doing mergers and acquisitions work, and
enjoyed doing things like fundraising for
rights issues for a listed company and doing
due diligence, all this kind of work was very
attractive to me to enhance my skills and experience,”
Wan says.
“The other attraction for me was that in
this profession, you’re always looking back
at things after they’ve happened, going in to
find out what’s happened and then reporting
on it. But when you’re in business as group
finance director, you’re participating in the
strategy formulation and implementation.
You’re living with the situation day to day
and seeing the results that you’re talking
about and directing.”
With that philosophy in mind, Wan made
the move to Dickson Concepts, and after five
years as the group’s financial director, was assigned
to the newly acquired Harvey Nichols.
Bucking the trend
With its strong Hong Kong connections, one
might expect Harvey Nichols to be leading
the charge of European luxury goods
purveyors into the mainland. Yet not even
Shanghai and Beijing figure in the brand’s
expansion plans, despite growing consumer
wealth and the voracious appetite for designer
labels.
Wan explains that the time is not yet
right. “We’ve established a strong reputation
in the United Kingdom, particularly in our
London flagship store, with our regular customers
who are high-end individuals who
love fashion and are serious about fashion,”
he says.
“They know very well that when they
come in, what they see every season is the
best of the best of many brands all housed
under one roof. What we’re selling is the ‘editing.’
” Wan points out that if people wanted
to buy just one brand they could go to that
brand’s own store, or go online, and shop
from the entire collection.
In the mainland, demand for this kind
of crossbrand curating is still nascent, Wan
says. “The fashion sophistication level
among so-called luxury consumers in China
is, relatively speaking, not as high as the
Western aristocracy or the very wealthy luxury
consumers. A lot of the people are really
only after the brand, the logo, rather than
appreciating the craftsmanship, the style,
the quality of the luxury goods.
“There are many people who are very
wealthy by any standard, but immediately
underneath that social group I can’t find
any really affluent middle class,” he adds.
“China’s clearly somewhere we will enter,
but it’s a question of timing.” For now, the
Hong Kong stores provide mainland visitors
with exposure to the brand and what it offers,
building awareness before an eventual
launch.
Wan says that even after all these years
in the C-suite, he’s still, deep down, a CPA.
“People laugh at me because I still act with
the same professionalism that I did when
I was a practising accountant,” he says.
“When I review things I’ll still issue a query
sheet like I did as a practising accountant
and auditor. But that’s stood me in very good
stead in confronting different situations.
And maybe it’s because I’m so passionate
about the job and love it so much, but I don’t
feel any stress.”
May 2012 31

Energy
32 May 2012
THE PRICE
OF POWER
As its cities become smoggier and electricity bills rise, China
dumps wind and solar and looks to alternative renewables.
But this almost certainly means coal and other fossil fuels will
remain the mainstay of energy production,
as George W. Russell reports
The future price
of energy
Estimated cost (USD) of
one megawatthour of
power from different energy
generation sources
entering service in 2016
Illustrations by Tree Tree Tes and Jennifer Choy
$66.1
Natural gas

Hong Kong’s only functioning
wind power turbine,
Lamma Winds, is often
barely visible from nearby
islands because of the smog.
The single turbine averages 100 kilowatts a
day, barely an eighth of its capacity, and an
insignificant proportion of the city’s energy
demand – unsurprising for a city that is part
of a country still highly reliant on fossil fuels.
The figures are gloomy. Nonrenewable
energy sources account for more than 90 percent
of China’s energy consumption, according
to World Bank data. China’s total energy
use rose 7 percent in 2011, the fastest annual
pace in four years, according to the National
Bureau of Statistics. (The global average is
an increase of just 1.6 percent according to
BP, the British energy giant.)
Nonrenewable energy is dirty energy,
which means China’s air is likely to get worse.
Premier Wen Jiabao announced in March
that the government would stop its “blind”
expansion of wind and solar industries,
which have grown sharply in recent years.
Instead, Wen claimed, Beijing would focus
efforts on developing nuclear and hydroelectric
power.
“The economics of these renewable energy
sources are still relatively less attractive
than that of the fossil fuels,” says Artie Ng, a
fellow at Hong Kong Polytechnic University’s
public policy research institute and a member
of the Hong Kong Institute of CPAs.
It is likely Beijing no longer saw the value
of paying a premium for electricity produced
from solar and wind. Developers of solar
projects get paid a minimum of 1 yuan per
kWh and wind power plants receive 0.61
yuan per kWh, while coal fired power plants
receive just 0.30 to 0.40 yuan, according to
Bloomberg New Energy Finance.
Although Wen’s announcement might
not mark an about-face on renewable energy,
it does mean – for the short term at
least – China will import more fossil fuels
as it develops alternative renewables like
nuclear and hydropower. According to a report
in March by the China Electricity Council,
China’s coal fired power output totalled
$113.9
Nuclear
3,825.32 billion kWh in 2011, up 14.8 percent
from a year earlier. Coal still accounts
for about 70 percent of China’s energy needs,
according to most estimates. Meanwhile,
the share of nonfossil energy consumption
– including solar, wind, nuclear and hydroelectric
power – of total energy use in China
declined 0.3 percent from 8.6 percent in
2010 to 8.3 percent in 2011, according to the
National Energy Administration.
“Coal, which is currently the most affordable
fuel for electricity generation, will inevitably
continue to be a part of the immediate
energy supply strategy for most developing
countries,” says Mark Takahashi, chief financial
officer of CLP Group.
Perhaps in anticipation of the policy
change, solar power producers had already
seen government subsidies withdrawn, and
a number of Chinese manufacturers have
collapsed or are in financial trouble and are
seeking buyers. Meanwhile, wind power lost
a lot of credibility when reports showed that
energy generated was wasted due to lack
of connectivity with the national grid – the
$94.8
Conventional coal
Figures are based on research by the Energy Information Administration in the United States and represent the
total cost of building and operating a generating plant over its life cycle. In reality, there could be variations in costs
based on local factors such as the cost of labour and fuel and government incentives at the time. The data excludes
energy from oil because the administration expects no new petroleum-fueled plants to be built in the future.
May 2012 33

Energy
China Renewable Energy Society estimates
that China lost nearly 17 percent of wind generated
electricity in 2011 because of access
issues.
Alternative alternatives
Still, according to China’s 12th five year plan,
the country remains committed to reducing
its reliance on fossil fuels and aims to increase
the share of renewable energy to 11.4
percent of total energy consumption by 2015.
Hydroelectric power is expected to make
up two thirds of that target, and China is already
the largest producer of hydropower in
the world. The country also plans to raise the
percentage of electricity produced by nuclear
power from the current 1 percent to 6 percent
by 2020. At present the country has 14
reactors spread over four separate sites and
27 under construction.
However, the Chinese government’s
change of heart towards solar and wind may
be premature, some in the industry say.
Solar power will become more efficient
with the next generation of technology, ac-
34 May 2012
cording to Takahashi of CLP. “Solar energy,
probably in the form of large scale photovoltaic
installations, will gradually move to
commercial scale deployment,” says Takahashi,
whose company is commissioning one
of Asia’s largest solar plants – the 55 megawatt
Lopburi Solar Farm in Thailand – and
will look for similar opportunities in China.
“We expect that it will take at least another
decade for technologies such as geothermal
or tidal power, advanced battery
and energy storage, or carbon capture and
storage from fossil fired power generation
to be mature and commercially viable,”
adds Takahashi, whose company also operates
the coal fired Castle Peak and gas
fired Black Point power stations in Hong
Kong, the Daya Bay nuclear power station in
Guangdong, and wind and biomass power
plants in China.
Wind turbine makers, meanwhile, are
picking up techniques learned from the
aerospace sector, adds Takahashi. “Larger
turbines with longer blades are improving
performance. Optimization of wind farms’
configurations is also expected to improve
efficiency,” he says. “This combination of
factors means that sites that were previously
considered poor are now more economically
viable.”
Energy security
China’s rethink on renewable energy comes
as the government expresses mounting concern
at the country’s imported energy bill.
For instance, the cost of imported oil is
estimated to be about US$250 billion in 2012
after an average annual bill of just US$66 billion
between 2000 and 2010, according to
the International Energy Agency. Oil is estimated
to meet almost 20 percent of China’s
energy needs. In March, Beijing raised petrol
prices by 7 percent to US$1.17 per litre – the
largest increase in about three years – in a
move partly aimed at suppressing consumers’
insatiable thirst for oil.
One source of worry for China – and other
heavy users of petroleum products – has
been a decoupling of oil prices from economic
growth since the most recent global
$112.5 $101.7
Biomass Geothermal

downturn began in 2008. “The historical
link between a slump in developed economy
growth and lower oil prices globally has been
broken,” says Madhur Jha, an economist
with HSBC in London who researches oil.
In the face of the stubbornly high price
of oil, countries like China have resorted to
beating the stuff out of rocks. Shale oil – oil
trapped in solid form inside sedimentary
rocks – was once seen as economically impractical
but has now become heavily sought
after. China has invested about US$15 billion
in Canada’s Alberta province alone to
extract the resource. The country is also embarking
on exploration of its own untapped
shale deposits.
Shale gas – natural gas trapped in shale
rocks – is also becoming an attractive fuel.
China believes that it has huge reserves, although
the country will take time to exploit
them. Output will rise to 23 billion cubic metres
by 2020, far short of the government’s
80 billion cubic metre target, according to
research by ExxonMobil. “Shale gas has had
a transformational impact on the energy
outlook of the United States and we believe
it could have the same impact in China,” says
Neil Beveridge, a senior oil analyst in Hong
Kong with the Sanford C. Bernstein investment
bank.
However, exploiting shale fuels in China
will be tough. “Chinese shales are deeper
and some contain nonhydrocarbons, which
will certainly add to the costs of production,”
says Beveridge. “In addition, more
difficult terrain, water availability, pipeline
infrastructure and a highly consolidated industry
in China may act as a barrier to rapid
development.”
In the meantime, natural gas is seen as
a middle ground between highly polluting
coal and oil, and emissions-free new technologies.
Natural gas only accounts for approximately
4 percent of China’s total energy
consumption. But the country has signed
long term agreements for liquefied natural
gas with Qatar, Australia, Indonesia and
Malaysia, and is building strategic pipelines
in Myanmar and central Asia to improve
supply.
$210.7 $97
Solar Wind
“China will need to import substantial
amounts of natural gas to cover its shortfall
in energy demand and to meet its carbon dioxide
emissions targets,” says John Ho, chief
financial officer at the Hong Kong & China
Gas Co. and an Institute member.
“I see us acting as a bridge between traditional
sources of energy to a time when
we will see the prevalence of new, sustainable
sources of energy,” says Ahmed Ali Al
Sayegh, CEO of Dolphin Energy, a company
that sells natural gas from its fields off the
coast of Qatar to China.
Totting up the bill
While China struggles to find the right mix
of energy sources, the cost of fossil fuels continues
to rise and so too do electricity bills
for businesses and households. Last November,
the National Development and Reform
Commission, China’s top economic planner,
raised retail electricity prices for nonresidential
customers by 0.03 yuan per kWh, or 5
percent. China’s average industrial electricity
price is 0.58 yuan per kWh in 2010, which
May 2012 35

Energy
Share of total primary
energy supply in China
Natural gas 3.3%
Oil 16.8%
36 May 2012
Coal/peat 67.3%
Nuclear 0.8%
Hydro 2.3%
Biofuels and
waste 9.0%
(Source: International Energy Agency
latest data, 2009)
Geothermal/
solar/wind
0.5%
is low to medium compared to the international
market, according to a report by the
commission.
Keeping energy prices cheap and stable
to support economic growth in the face of
volatility of fossil fuel prices is a challenge,
says Richard Li, finance director of CLP and
an Institute member, but it can be done. “Fuel
costs are managed through strategic alliance
with fuel suppliers, long term supply contracts,
the burning of low... [quality] coal,
sourcing of cheaper working capital and preventive
maintenance,” he explains.
In China, the government is also looking at
practical ways to keep utility bills for end users
as low as possible. For example, it introduced
1,000 of what are known as distributed energy
resource projects in China during 2011.
“[These] are small power generation systems
established near the end users that reduce energy
wastage from the long distance transmission
of gas,” explains Raymond Wong, CFO of
the Zhengzhou Gas Company, a subsidiary of
mainland giant China Resources Gas, and an
Institute member.
Ng at Hong Kong Polytechnic University,
a former Coopers and Lybrand auditor, says
accountants can do more to ease the energy
burden. “CPAs can participate in economic
feasibility studies to introduce clean energy
solutions to the city, including green buildings
and energy efficiency projects,” he says.
Incidentally, CLP is one of two companies
in Hong Kong involved in the global integrated
reporting pilot programme, which aims to
get a more comprehensive corporate picture
by measuring the nonfinancial impact of a
company on society and the environment.
The Hong Kong stock exchange is consulting
on whether to compel listed companies
to disclose more environmental, social
and governance information.
Of course, some of the nonfinancial benefits
are priceless, Ng adds. “Health benefits
and hope for our next generation, resulting
from a cleaner environment, should be footnoted
but accounted for, similar to notes to
financial statements.”
That could help China breathe much
more easily.
$86.4 $243.2
Hydro Offshore wind

Office life
38 May 2012
WHEN
WORK
TAKES
OVER
In the face of longer hours and shorter
tempers, Liana Cafolla finds out how
accountants get through the busy season
without falling out, falling to pieces or
falling down on the job
Illustrations by Tree Tree Tes

It is peak season, and dawn has
scarcely broken as you trudge towards
the office, barely refreshed
from less than six hours’ sleep. You
brought home four hours’ worth of
work last night, determined to make a dent
in the rising pile of papers that has taken up
almost all your workspace. You managed to
read three pages before falling asleep in the
armchair.
Your spouse is less than impressed. Today,
though, today will be different, you promise
yourself. Today you will not allow yourself
to be distracted and you will finally sign off
on that report. You will leave the office by
8 p.m., be home in time for a family dinner
and spend an hour on the treadmill before
hitting the sack.
But it is not to be. Before you have even
entered the lift, a text from your boss announces
that another report must now take
precedence. Seconds later, another text arrives,
this time from a client demanding to
see you before lunch. Two colleagues are
chatting loudly beside your cubicle, and one
has spilled coffee on your chair.
Your assistant plonks another stack of
documents on top of the teetering mountain.
Your mobile rings. It’s going to be another
long day.
If that all sounds depressingly familiar,
it’s because similar scenes are happening
in offices all around the world. Workplace
stress is nothing new. For accountants, however,
the regularity of frenetically busy periods
including year-end, budget periods and
the release of annual results make such scenarios
commonplace.
“I hear accountants talking about the
hectic hours they are working, particularly
at peak season,” says Angel Lam, manager of
the commerce and finance team at recruitment
consultancy Robert Walters, which
hires for accounting positions in Hong Kong.
“There are stories that I hear they are working
for a whole full month, 18 hours a day,
without any days off.”
While overtime is a fact of life during busy
periods, some firms say they try to ensure
that it does not become excessive. “We offer
overtime compensation as staff may be expected
to work overtime in order to meet cli-
“I hear accountants
talking about
the hectic hours
they are working,
particularly at
peak season.”
May 2012 39

Office life
“It’s just a fact of
business life that
misunderstandings
occur and
personalities can
clash when working
closely together
for long hours on
deadline-driven
projects and during
busy periods.”
ents’ and the firm’s requirements, but we encourage
people to not to work overnight and
keep overtime to a minimum,” says Kelvin
Kwong, staff partner at Grant Thornton and a
member of the Hong Kong Institute of CPAs.
Multiple flashpoints
Aside from long hours, stress can arise from
working closely together over long periods.
Differing habits, from personal hygiene, the
level of voice used to make a telephone call
to dealing with colleagues who continually
steal your snacks from the communal fridge,
can all become sources of frustration, leading
to decreases in employee productivity.
“It’s just a fact of business life that misunderstandings
occur and personalities can
clash when working closely together for long
hours on deadline-driven projects and during
busy periods,” says Pallavi Anand, director
at recruitment consultants Robert Half
Hong Kong.
Changing work environments may be a
cause. Open-plan offices, for example, are
preferred to cubicles as they reduce total
workspace – an important cost concern in
40 May 2012
high-rent cities such as Hong Kong.
In the United States, Pricewaterhouse-
Coopers is among several large companies
that have taken this trend a step further by
using shared space for some large groups.
With laptops and mobile phones, a dedicated
workspace is less important than it once was.
So, instead of being assigned a personal desk,
employees use whichever desk is available
on any given day, keeping files and personal
possessions in a locker.
For companies, the practice of sharing
space makes good business sense. By some
estimates, up to 50 percent of office space is
unused each day owing to leave, sickness,
business trips or flexible working, Susan
Chapman, a senior vice president at American
Express, told The Wall Street Journal recently.
Some employees welcome the variety
of working in a different space each day. But
for others, it can adds to workplace stress by
limiting privacy.
Onus on organizations
Stress levels can be alleviated by working on
three fronts – the organizational level, the
managerial level and the personal level, say
human resources professionals.
At the organizational level, firms can take
practical measures during busy periods to
make the workplace more comfortable.
Catriona Rogers, a counselling psychologist
at IMI, a Hong Kong holistic health clinic,
says good communication, practical staff facilities
and a calming environment can help
reduce tension levels.
“Aligning everyone behind the necessary
goal and ensuring people feel supported
and part of a team is essential,” she says. To
do this, firms need to brief staff in advance
of busy periods, and manage expectations
about noise levels, personal hygiene and
dealing with stress.
Rogers also suggests offering showers,
if possible, or at least deodorant and room
fresheners. In the kitchen, firms should provide
water, crackers, fruit, cheese or other
protein foods. Grant Thornton provides cup
noodles, snacks and soft drinks in their pantry
during peak seasons, says Kwong.
Along with providing calming ambient
music in shared spaces, another easy mea-

sure is to bring nature into the office.
“Bring some green into the environment –
plants, flowers et cetera,” says Rogers. “Green is
proven to calm the brain.”
Organizations can also bring the outside
inside in other helpful ways, says Lam of Robert
Walters. For example setting up clubs,
such as football clubs or wine-tasting clubs,
to encourage staff to take up more hobbies,
or offering particular kinds of classes on site
can be very effective in alleviating stress and
encouraging team spirit.
“I’ve seen cases where [firms] will have
different types of wellness classes, like they
would invite a yoga instructor to teach during
lunch hour, or they would have some kind
of meditation classes,” she says.
Follow the leader
Managers play a key role in reducing stress
levels because of their proximity to staff and
their awareness of day-to-day deadlines.
Managers can help staff avoid burnout by
leading by example, sending the message
that even though it is busy and everyone
needs to complete their work, staff should
Five tips for getting along with coworkers
Get to know them
Take the time to get to know your coworkers. Finding out about their work styles,
concerns and the pressures they face will help you work better with them in times of
pressure. “The more you can put yourself in their shoes, the better you can anticipate
issues that might create friction,” says Pallavi Anand at Robert Half.
Lend a hand
Be a team player – help out your coworkers when they are struggling with deadlinedriven
projects. It will create goodwill between you, and they’ll probably be happy to
return the favour when the tables are turned.
Read between the lines
If you’re new to the job, keep your eyes and ears attuned to learning the unwritten
rules of the office. Finding out who is responsible for what means you are less likely to
step on anyone’s toes – a surefire way to add to workplace tension.
Fight your own battles
Complaining to the boss when coworkers are slack or uncooperative won’t earn you
any favours, and probably won’t resolve the problem either. “Try to work out your
differences without asking your manager to intervene,” advises Anand.
Take a look in the mirror
Remember, everyone has irritating habits – and that includes you. If relations with your
colleagues are tense, ask yourself if some of the fault lies in your own behaviour, and
address it.
May 2012 41

Office life
“It is possible to live
in very stressful
environments if the
person is able to
turn inwards and to
find quiet there.”
take regular short breaks, even if just to
stretch their legs. When teams are working
on tight deadlines, managers should consider
taking the team out to lunch together.
“At the end of the day, it’s only an hour
out of the workday, but having that hour’s
rest when your mind is off work, can help increase
overall productivity,” Lam says. “It’s
management’s responsibility to take action
on it and lead by example.”
Achieving a balance
Some firms are helping staff maintain a
healthy balance between personal and professional
commitments by offering flexible,
family-friendly working arrangements. But
not all firms benefit from such strategies.
“If you really cannot change your work
circumstances, then all you can work with
is yourself and your approach or response
to the situation,” advises IMI’s Rogers. She
suggests practising meditation, exercise and
yoga to reduce stress, as well as getting
enough sleep and cutting out, or reducing,
alcohol intake.
42 May 2012
“Even if you have very little free time,
try to take at least 10 minutes for yourself
to breathe, relax and unwind,” says Rogers.
“Similarly, exercise is a great antidote
to stress. In extremely busy times, it can be
tempting to not exercise, but taking even 20
minutes daily for a brisk walk will help. It
is possible to live in very stressful environments
if the person is able to turn inwards
and to find quiet there.”
As the accounting profession has evolved
into an all-rounded profession that is enmeshed
in business strategy, encouraging
staff to get involved in interests outside work
benefits both the business and the individual,
says Lam, because having a variety of interests
tends to broaden people’s perspectives.
In addition, “People with hobbies tend
to be more motivated because you actually
have an interest outside work,” she says.
“Empathy, flexibility and humour can all
help to reduce stress, both in the individual
and the wider workplace,” says Robert Half’s
Anand. Using humour at appropriate times
can help maintain your perspective and ease
everyone’s stress, your own included. It will
also help counter pessimism and negativity,
which can easily become contagious in a
close office environment, she says.
“Most people appreciate at least some
degree of levity in the workplace; it’s hard
to have tense relations with someone who
makes you laugh,” Anand says.
It is important to bear in mind that your
work habits may be as irritating to your colleagues
as theirs are to you.
Anand suggests being sensitive to the
pressures your colleagues are under and taking
a sincere, nonconfrontational approach
to resolving differences.
“Your ability to get along with all types of
personalities not only can make work more
enjoyable but may also help your career,” she
says.
“Companies seek individuals who can
successfully collaborate and build consensus
on projects, and being able to forge effective
working relationships with even the most
difficult colleagues might distinguish you on
the job,” she adds.

Hong Kong tax
New treatment of share-based
payments needs clarification
The Inland Revenue Department has taken a new stance on
deductions for share-based payments in group-recharge
situations. Tracy Ho and Patrick Kwong explain
It is common for a holding company
to grant its own stock options
or share awards to cover the
employees of its subsidiaries and
then recharge the subsidiaries a certain
amount. While the accounting treatment of
these recharges is clear, the tax treatment
of the same has been controversial.
Example 1
Under a group employee share-based
incentive scheme, company A, as parent,
grants some employees of its subsidiary,
company B, options (unlisted) at a nominal
consideration.
Each option entitles an employee of
company B to subscribe for a certain
number of shares in company A at a
certain price (normally below the then
market price of the shares) at the end of his
or her third year of employment, provided
the employee has remained for the threeyear
period.
Company A will issue its own new
shares to discharge its obligations under
the group scheme. Furthermore, at the
outset of the group scheme, pursuant to a
recharge agreement, company B agrees to
pay company A the fair value of the options
involved at the end of each year when the
relevant expenses are charged to its income
statement in accordance with Hong Kong
Financial Reporting Standard 2. The options
involved on the date of grant are valued
at HK$1.8 million. Therefore, under the
recharge agreement, company B is liable
44 May 2012
to pay company A HK$600,000 at the
end of each of the three years concerned,
assuming even spread of the costs involved.
Prior stance
Despite there being contractual and legal
liabilities assumed by company B to pay
company A under the recharge agreement,
the IRD’s prior stance was to disallow
company B the tax deduction for the
expense of HK$600,000 payable for each
of the three years concerned.
The IRD’s prior stance was presumably
taken on the basis that such recharges only
represented a recharge of the “economic
opportunity or notional cost” suffered by
company A for issuing its own new shares
at less than their full market value. The IRD
then took the position that such recharges
were not tax deductible as they did not
represent a recharge of the actual out-ofpocket
costs suffered by company A.
In a single company situation, the caselaw
authority in Lowry v. Consolidated
African Selection Trust Ltd. [1940] 23 TC
259 lends support to the IRD’s disallowance
of share-based expenses recognized under
HKFRS 2 when the company issues its own
new shares at below market value to its
employees under an incentive scheme.
However, this concerned only a singlecompany
situation but the IRD apparently
attempted to extend it to cover a group
recharge situation.
The IRD’s prior stance was that it is
only when company A discharged its
obligations under the group scheme by
incurring actual costs for acquiring its own
shares from the market (as treasury stock)
that company B would be allowed a tax
deduction for the recharge.
Many taxpayers have been disputing the
IRD’s prior stance, which simply looked at
whether the group as a whole had incurred
actual out-of-pocket costs for acquiring
the shares from the market for the group
scheme.
Such taxpayers contend that the
IRD should respect that a parent and a
subsidiary are separate legal entities and
that for Hong Kong tax purposes, the IRD
should look at the position of the paying
company only. As such, they contend that
company B in example 1, having assumed
contractual liabilities to pay company A,
should be allowed a tax deduction for the
recharge.
New stance
On 6 March the IRD announced that a tax
deduction for a recharge would be allowed
regardless of whether the shares involved
are from a new issue or are acquired from
the market by another group company.
However, the timing for the tax deduction
might not necessarily be when the liabilities
are contractually due or recognized in the
accounts, but when the relevant options are
exercised or shares vested.
Furthermore, the amount claimed for
tax deduction must not be excessive. For
example, this must not be more than the

open-market value of the shares at the time
the options are exercised or shares vested,
less the consideration for the shares paid
by the relevant employees.
Issues arising
While taxpayers generally welcome the
new stance taken by the IRD on grouprecharge
situations, the IRD may need to
clarify certain issues arising from its
6 March announcement.
Example 2
The facts are the same as in example 1,
except that company A is now discharging
its obligations under the group scheme by
acquiring its own shares from the market
(as treasury stock) in year one, incurring
actual costs of HK$2 million.
Assume now that the employees of
company B exercise, in year four, all the
options previously granted to them and
that the difference between the market
value of the shares involved on the date of
the exercise and the exercise price of the
options is HK$2.5 million.
Although the actual costs incurred by
company A for acquiring its own shares
from the market in year one is HK$2
million, the total amount recharged by
company A to company B (i.e., a recharge
of HK$600,000 each payable at the end
of year one, year two and year three) is
HK$1.8 million. The market value of shares
involved on the date of the exercise less
the exercise price of the shares paid by the
employees in year four (according to the
IRD’s announcement on 6 March) is HK$2.5
million.
It does not appear to be clear from
the IRD announcement whether the tax
deduction for company B in year four
should be HK$2 million or HK$1.8 million
or HK$2.5 million (i.e., whether any one or
more of these figures would be regarded
as excessive under the new stance). And
if the amount allowed for tax deduction
cannot in any case exceed the amount
actually recharged (i.e., HK$1.8 million
in example 2), what would be the tax
position of company B if company A only
incurred HK$1.5 million to acquire the
shares involved from the market? Would
the tax deduction for company B then
be restricted to HK$1.5 million, despite
HK$1.8 million being actually recharged?
A PLUS
Furthermore, while deviating from
the accounting treatment, the IRD’s
announcement has not stated the legal
basis for its disallowing company B a tax
deduction of HK$600,000 for each of
the three years concerned at the time the
amount was recharged according to the
recharge agreement.
Instead of allowing company B a tax
deduction of HK$600,000 each for year
one, year two and year three, company
B in example two would, under the IRD’s
new stance, probably be granted a tax
deduction in year four of HK$2 million,
HK$1.8 million or HK$2.5 million when the
options are exercised by the employees of
company B.
In addition to the uncertainty about the
legal basis and the exact amount being
allowed for tax deduction in year four, it
also appears unclear whether taxpayers
who have previously conceded on their
claims for tax deduction can now benefit
from the IRD’s new stance.
Tracy Ho is the Hong Kong and Macau tax location leader
and Patrick Kwong is executive director of Ernst & Young.
May 2012 45

114
TechWatch
The latest standards and
technical developments
Financial reporting
Institute comments on IASB exposure
draft of Revenue from Contracts with
Customers
The Institute continues to support many of
the broad principles in the exposure draft
and finds that the application guidance is
easier to understand and more helpful.
However, it is believed that some of the
principles, especially concerning satisfaction
of performance obligations over time, need
to be clarified or reconsidered in order
for the proposed standard to be applied
properly and consistently across different
types of contracts with customers, including
those commonly found in the construction
and real estate industry as well as the
telecommunications industry.
Specifically, in respect of pre-sales
of individual apartments within a larger
development, the constituents have expressed
serious concerns about whether these
proposals are operable and whether they
are consistent with the principle of the
standard to recognize revenue when or as
the entity satisfies a performance obligation.
In its detailed response, the Institute has
explained these concerns and noted a number
of matters for which further clarity is required.
It is considered that if the Institute’s proposals
for simplifying the calculations and narrowing
the concept of “right to payment” in respect
of these apartment sales are not accepted
by the boards, then the standard should
instead clearly scope out sales of individual
apartments within property development
projects controlled by the developer from any
assessment under paragraph 35 and therefore
require such contracts to be automatically
assessed under paragraph 37 on the basis
that the performance obligation is satisfied
“at a point in time.”
46 May 2012
In respect of the telecoms industry
and other industries with service plan
arrangements with customers or other
contingent income, which depends on a
customer’s end customer, it is considered that
the role of “contract options which do not
contain a material right” and the constraint
on the recognition of revenue which is not
“reasonably assured” need to be given
greater prominence at steps two and three
respectively, so as to reduce confusion and
inappropriate revenue recognition at the later
steps of allocating and reco gnizing revenue.
However, the Institute does not support
the proposal to assess onerous contracts at
the performance obligation level. Instead, it
is considered that provisioning for onerous
contracts is an issue relating to the timing
of recognition of nonrecoverable costs and
should continue to be dealt with in IAS 37
rather than in the proposed revenue IFRS.
Also, the Institute would like to encourage
the IASB and the FASB to reconsider:
• the disclosure requirements and transitional
provisions, so as to achieve an appropriate
balance between the benefits to users
and the costs to entities of preparing and
auditing that information
• the location of the “costs to fulfil”
requirements so as to maintain a logical
structure of the IFRS literature and to
avoid unnecessarily amending existing
requirements and literature structure that
have served IFRS users well
Transition guidance (proposed
amendments to IFRS 10)
The Institute welcomes the IASB’s
decision to clarify the transition guidance
and, in general, supports the proposed
amendments as they provide greater clarity
and ensure consistent application of the
transition requirements.
The Institute understands that some
constituents have expressed concerns about
the effective dates of IFRS 10, 11 and 12 after
they were published in May 2011. It is noted
that the adoption of IFRS 10 and 11 may lead
to significant changes in an entity’s reported
financial position and performance. Given
that the new standards contain certain
requirements that require exercise of
significant judgment and yet do not contain
clear principles or guidance in respect of
those requirements, more time and effort
would be required to develop a common
understanding of how the key judgment
should be applied in those situations.
A further concern is that the IASB
is currently working on the project of
investment entities and the possible
amendments to the transitional
requirements around IFRS 10 that might
affect the application of IFRS 10 and create
uncertainty. For these reasons, the Institute
recommends the board to consider
deferring the effective date of the standards
to the later of (a) 1 January 2014 or (b) 12
months after the amendments to IFRS 10
and the standard on investment entities
have both been published.
Ethics
Invitation to comment on IFAC’s proposed
changes to code of ethics
The Institute has issued an invitation to
comment on IFAC’s International Ethics
Standards Board for Accountants exposure
draft on proposed changes to the Code
of Ethics for Professional Accountants’
definition of “engagement team,” with
comments requested by 30 April.
The proposals address comments
received by the International Auditing and
Assurance Standards Board on its exposure

draft on ISA 610 Using the Work of Internal
Auditors. A number of respondents to that
exposure draft pointed out the perceived
inconsistency between the independence
requirements for external auditors under
the code and the use of internal auditors to
perform external audit procedures.
Both the IAASB and the IESBA have
carefully considered the requirements and
guidance on direct assistance in ISA 610
and whether the safeguards outlined in the
revised standard adequately address the
threats to the external auditor’s objectivity.
In particular, the requirements of ISA 610
now include a number of restrictions on
internal auditors providing direct assistance
to external auditors.
In addition, a new requirement was
introduced at the suggestion of the IESBA
regarding the need to communicate to those
charged with governance the planned use of
internal auditors to provide direct assistance
so as to reach a mutual understanding
that such use is not excessive in the
circumstances.
The IESBA believed this was a necessary
safeguard because, notwithstanding the
direction, supervision and review by the
external auditor, excessive direct assistance
by internal auditors may affect perceptions
regarding the independence of the audit.
The IESBA is now proposing to amend
the code to avoid any perception that the
code is in conflict with the ISA. It clarifies
that individuals in an internal audit
function providing direct assistance do not
meet the definition of the engagement team
under the code.
Subject to comments received on
exposure, the IAASB will make a similar
amendment to the definition of engagement
team in the ISAs and ISQC 1 so as to align
with the IESBA Code. The explanatory
memorandum to the exposure draft provides
further background information and
explanation of the proposed changes to the
definition of engagement team.
Corporate finance
Amendments to Takeovers Code
In releasing a consultation conclusions paper
on 23 March, the Securities and Futures
Commission announced that the following
amendments to the Takeovers Code take
immediate effect:
• Property valuation requirements apply
to offers only when the offeror is an
interested party.
• It is the responsibility of the financial
adviser, placing agent and acquirer of the
voting rights to confirm the independence
of placees in placing and top-up
transactions.
• The period for payment of acceptance of
an offer is seven business days.
Taxation
Advance ruling case on source of profits
and deductibility of associated expenses
The Inland Revenue Department published
an advance ruling relating to Sections 14
and 16 of the Inland Revenue Ordinance.
If a taxpayer has an overseas branch that
carries out distribution and retailing of a
A PLUS
product outside Hong Kong, given that
contracts of purchase and sale of the
product would be effected outside Hong
Kong, the IRD rules that the profits derived
by the branch from its sales of products
to the unrelated wholesalers will not be
taxable. Corresponding expenses will not be
deductible as they were not incurred for the
production of the said profits.
IRD issues new practice notes on
advanced pricing agreements
The IRD issued a new Departmental
Interpretation and Practice Notes 48
Advanced Pricing Arrangement on 30
March. See the department website for
details such as the application process, and
its terms and conditions. The programme
became effective from 2 April.
Knowledge of fraudulent directors is ruled
attributable to the taxpayer
In the appeal case of Moulin Global Eyecare
Trading Limited (In Liquidation) v. CIR, the
Court of Appeal dismissed the judgment by
the Court of First Instance and ruled that
the fraudulent mind of controlling directors
can be attributed to the taxpayer. In this
respect, the tax paid by the taxpayer based
on fraudulently inflated profits stated in the
tax returns filed cannot be the subject to
re-opening under Sections 64 or 70A of the
Inland Revenue Ordinance. The taxpayer
may appeal against the case further to the
Court of Final Appeal.
Source of commission income is ruled to be
offshore in Li & Fung case
In the appeal case of Li & Fung (Trading)
Limited v. CIR, the Court of Appeal upheld the
judgment by the Court of First Instance and
ruled that the taxpayer’s commission income
is not taxable. Though there is new evidence
showing certain activities were performed
in Hong Kong, the judge did not take it into
account as it was never brought up at the
hearing of the Board of Review. This implies
the importance of bringing all the facts of the
case at the board, which may have significant
impact on the court’s judgment at a later
stage. The department may take the case to
the Court of Final Appeal.
Please refer to the full version of TechWatch 114,
available as a PDF on the Institute’s website:
www.hkicpa.org.hk
May 2012 47

Tech Q&A
The Hong Kong stock exchange recently amended the Corporate
Governance Code. One amendment is that an issuer’s management
should ensure the external auditor attends the annual general
meeting to answer questions. Has the Institute issued guidance to
assist members?
In October 2011, the Hong Kong stock
exchange amended the main board
and GEM listing rules relating to the
Corporate Governance Code. One of the
amendments is the new E.1.2 provision in
the revised code.
The new provision requires the
management of a company to ensure the
company’s auditor attends the annual general
meeting to answer questions relevant to the:
(i) Conduct of the audit
(ii) Preparation and content of the auditor’s
report
(iii) Accounting policies adopted by the
company in relation to the preparation
of the financial statements
(iv) Independence of the auditor in relation
to the conduct of the audit
The revised code is effective from 1 April
2012, and accordingly an auditor is expected
to attend and answer questions at an AGM
that is held on or after that date.
The Institute’s auditing and assurance
standards committee has developed
Auditing and Assurance Technical Bulletin 2
Guidance to the Auditor when Responding
48 May 2012
to Questions at an Annual General Meeting.
The technical bulletin has been prepared
in consultation with the stock exchange
and staff of the Securities and Futures
Commission and can be accessed on the
Institute’s website.
The technical bulletin provides general
guidance on a number of useful areas,
including the following:
Auditor’s responsibilities in
responding to questions
The auditor does not respond to questions
dealing with issues beyond the scope of
the audit mandate or questions relating to
matters that are the responsibility of those
charged with governance. Therefore it is
important that the auditor, together with the
chair of the AGM and those charged with
governance, adequately prepare for their
participation at an AGM.
If the auditor is asked to respond to
inappropriate questions or if responses are
not understood in an appropriate context,
there is the risk that any answers provided
could be misleading.
AGM planning
Adequate planning and preparation for the
AGM enables authoritative responses to be
provided to questions raised. The auditor
prepares for questions that may be received
either in writing before the AGM or verbally
at the AGM.
Context in which an auditor
responds to questions
Shareholders are to be made aware of the
limitations of the auditor’s role at the outset
of an AGM or before shareholders ask the
auditor questions. Accordingly, the auditor
first conveys at the outset to the meeting
or before shareholders ask questions
the context within which the auditor’s
response is provided by explaining key
aspects of an audit.
The Institute understands that in
general, the auditor does not owe a duty
of care to individual shareholders or third
parties when carrying out the audit work

save in exceptional circumstances (for
example, where damage is foreseeable and
there is a special relationship of proximity
between the auditor and the individual
shareholder or third party such that it is
fair, just and reasonable for the law to
impose a duty of care; or where the auditor
has voluntarily assumed responsibility
to the individual shareholder or third
party concerned). If the auditor believes
such exceptional circumstances arise, the
auditor should be cautious in answering
questions raised at AGMs and seek legal
advice when in doubt.
The auditor may consider reading
or circulating a short disclaimer before
answering questions to the effect that,
notwithstanding any answers he/she gives
or statements he/she makes, the auditor
shall not have any liability, responsibility
or duty of care towards any individual
shareholders or third parties.
Responses to questions
The auditor responds to questions relevant to
the conduct of the audit, the preparation and
content of the auditor’s report, the accounting
policies adopted by the company in relation
to the preparation of the financial statements
and the independence of the auditor.
The auditor is not able to provide an
authoritative response to questions dealing
with issues that go beyond the scope of the
audit mandate or questions which should
have been addressed to those charged with
governance, and therefore such questions
are declined by the auditor.
Modification to the independent
auditor’s report
If the auditor has issued a modified auditor’s
report, the auditor may expect to be asked
questions about issues leading to that
modification. The auditor addresses any such
questions by reference to the auditor’s report.
The auditor is reminded that HKSA 705
Modifications to the Opinion in the
Independent Auditor’s Report requires that
the auditor’s report includes all relevant
information to explain matters that result in a
modified auditor’s report.
Audit files
While responses given by the auditor will be
supported by sufficient appropriate audit
evidence, audit files should not be taken into
the AGM. The level of detail contained in
audit files is not appropriate for responses to
questions at AGM.
Auditor’s representative at the AGM
On those occasions when the auditor is not
able to attend an AGM and questions for the
auditor have been identified, the auditor
arranges for a representative to attend the
meeting on the auditor’s behalf.
In this situation, the auditor ensures that
the representative has sufficient knowledge
of the engagement and is provided with
sufficient information to provide an adequate
response to the matters raised.
Inability to provide a
response to a question
A question may arise at the AGM in relation
to the audit to which the auditor is not able
to provide an immediate response.
For example, the auditor may wish to
seek legal advice prior to providing the
response.
In these circumstances the auditor
and the company’s management make
alternative arrangements, as appropriate,
to communicate the information to the
shareholders. This may include posting
the response on the company’s website as
soon as practicable after the AGM.
Written questions to the auditor
before the AGM
If a company has in place arrangements for
shareholders to submit written questions
to the auditor before the AGM, the auditor
obtains the protocol for such arrangements
when planning for the AGM.
Furthermore, in the appendix of the
technical bulletin, there are examples
of possible questions asked in an AGM
and comments on the auditor’s response
covering the following questions:
• Were there any limitations imposed by
management upon the scope of your
audit?
• As the auditor of the company, did you
consider yourself sufficiently independent
of the company to perform an adequate
audit?
• Discuss your relationship with
management. Have you had any
disagreements with them that have not
been resolved to your satisfaction?
Auditors of listed issuers are encouraged
to familiarize themselves with the technical
bulletin before attending an AGM.
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.
May 2012 49

Events
Your guide to courses, workshops and member activities
Auditing and
assurance
Audit practice manual
application workshops introduce
the updates to the Institute’s revised
manual and explain how they affect
audit engagements of nonlisted entities
for periods beginning on or after 15
December 2009.
CPD hours: 7
Languages: Cantonese and English
Time: 9:00 a.m. - 5:00 p.m.
Dates: 3, 14 May
Training for audit manager is
a one-day audit workshop which covers
the conduct of small- to medium-sized
engagements in compliance with Hong
Kong Standards on Auditing; the auditing
of more complex areas such as revenue,
inventory and accounting estimates; and
common issues when applying financial
reporting standards.
CPD hours: 7
Languages: Cantonese and English
Time: 9:00 a.m. - 5:00 p.m.
Date: 9 May
Business and
professional knowledge
Using technology to enhance
competitiveness through
intellectual capital will highlight
how firms can use low cost technology to
leverage intellectual capital more effectively.
CPD hours: 1.5
Language: English
Time: 6:30 - 8:00 p.m.
Date: 7 May
54 May 2012
Writing proposals, deliverables
and reports to maximize
corporate benefits explains how
writing is an art as well as a science. This
seminar helps participants develop the skills
to produce good reports that present clear
solutions and motivate clients to change.
CPD hours: 3
Language: English
Time: 6:30 - 9:30 p.m.
Date: 16 May
Risk taking, management
and modelling in financial
institutions will introduce risk profiles
in financial institutions and management
approaches for different types of risks. The
development of risk-modelling techniques in
the financial sector will also be reviewed.
CPD hours: 1.5
Language: English
Time: 12:30 - 2:00 p.m.
Date: 17 May
Creating and developing your
consulting business teaches
accountants ways to master the consulting
business. The seminar will explain how
to make a consulting business work
within an accounting practice. It will also
make participants aware of guidelines on
consulting and professional liability.
CPD hours: 3
Language: English
Time: 6:30 - 9:30 p.m.
Date: 25 May
Business finance
Understanding bank facility
letters and term sheets for
accountants will introduce key terms
and conditions in a bank’s facility letter and
term sheet, including basic credit terms,
amendments and waivers, representations
and warranties, and covenants.
CPD hours: 3.5
Languages: Cantonese and English
Time: 9:30 a.m. - 1:00 p.m.
Dates: 5 May (English) and 9 June
(Cantonese)
Financial accounting and
reporting
HKFRS for Private Entities
workshop assists members with the
implementation of the standard. Each
session will include instruction followed by
group exercises. The agenda of the workshops
is based largely on IASB training materials.
CPD hours: 21
Languages: Cantonese and English
Time: 9:00 a.m. - 5:00 p.m.
Dates: 16, 24 and 31 May
25.35 group workshop on
adversity and change
management is a full-day workshop
where participants will interact through
lectures, discussions and group activities.
CPD hours: 7
Language: Cantonese
Time: 10:00 a.m. - 5:00 p.m.
Date: 19 May
Visit the Institute’s website for other programmes and
to enrol and pay online: www.hkicpa.org.hk

Tantalizing Taipei
More than 400,000 Hong
Kong residents visited Taipei
last year, according to city
officials. While many are
business travellers, increasing numbers are
interested in exploring the city’s historical, culinary
and cultural treasures.
In Hong Kong, there has been a renaissance
of interest in Taipei – and Taiwan in general. Last
year, the John Woo historical epic Seediq Bale
ignited interest in Taiwan’s aboriginal culture.
While Taiwan’s rugged natural beauty and
historic temple cities such as Tainan have long
56 May 2012
Business travel
The island's capital is a popular destination but
visitors can find hidden gems. Institute member
Honnus Cheung, CFO of Travelzoo Asia Pacific,
wanders its streets
been on the tourist trail,
there has been less of an interest
in Taipei, long considered an
unexciting commercial capital.
However, city authorities have worked
hard over the past two decades to create a
more vibrant and diverse metropolis. The arts
scene has become much more interesting of
late, with institutions such as the Museum of
Contemporary Art offering provocative, cutting-edge
exhibitions.
The Taipei Fine Arts Museum – not to be
confused with the National Taiwan Museum
of Fine Arts in Taichung – has
presented exhibitions by dissident
mainland artist Ai Weiwei as well as
its popular displays of Western masters
such as Paul Gauguin and Claude Monet.
The pinnacle of visual artistic expression
remains, of course, the National Palace Museum,
representing 5,000 years of Chinese
cultural artefacts. Insanely busy to the point
where some treasures such as the 19th century
Jadeite Cabbage may be glimpsed for only
seconds, the museum remains a must-see.
Another popular destination is the Taipei
PHOTO: AFP

Previous page: The entrance to the National Palace
Museum; chou doufu from the Raohe Night Market.
This page (from top): An exhibit in the Museum
of Contemporary Art; a stretch of the redeveloped
riverfront; the iconic Taipei 101 Tower
PHOTO: GEORGE W. RUSSELL
PHOTO: GEORGE W. RUSSELL
PHOTO: GEORGE W. RUSSELL
Confucius Temple in Datong district. Completed in
1939, this striking architectural oddity replaced a
building from the 1880s torn down by the invading
Japanese. It has incorporated modern multimedia
exhibitions to explain the theories of China’s most
famous philosopher.
Taiwan’s compactness means that many rural attractions
are close to Taipei. While the Tatun Mountains
north of the city are volcanic in origin, tectonic
disturbances have subsided. However, geothermal
activity remains, creating many natural hot springs.
Several, including Beitou, Wulai and Yangmingshan,
are within an hour’s drive of downtown
Taipei. Beitou is home to the Taiwan Folk Arts Museum,
while Wulai is Taipei’s only aboriginal mountain
village. Yangmingshan, meanwhile, features
Japanese architecture from the colonial period.
Taiwan has a rich and extensive local cuisine enhanced
by the arrival of communities from Fujian
and other Chinese provinces. Pig-blood cakes, cold
stewed trotters and green-tea croissants are just
some of the popular foods found in Taipei.
The city has an extensive noodle culture and
popular local varieties include hsinchu, danzi
and o ami suann. Street food markets enliven the
evenings in most Taipei neighbourhoods. One
fine example is Raohe Night Market in Songshan
District, a pocket-sized slice of heaven that features
a stunning array of foods sold from shops, stalls
and carts, including the famous fermented chou
doufu (stinky tofu).
Of course, Taipei has an abundance of “pearl”
or “bubble” tea sellers. This Taiwan specialty is
flavoured tea (often with milk) mixed with boiled
tapioca balls to give it texture. Though now found
worldwide, aficionados say there’s nothing like
tasting bubble teas on their home ground.
Not all Taipei foods and beverages have to be
dramatic, however. The city has hopped onto the
coffee bean bandwagon in recent years and last
month, Franz, a porcelain manufacturer, opened
a coffee house in the south wing of the Taipei Fine
Arts Museum.
Taipei has an extensive public transport network.
The city’s MRT, or underground rail system,
is clean and modern – eating or drinking on MRT
trains is forbidden, just as in Hong Kong – while commuter
services offer easy access to the rustic port of
Jilong (Keelung) and nearby cities such as Hsinchu.
Meanwhile, Taiwan High Speed Rail Corporation
runs 300 kilometres-per-hour expresses to
Kaohsiung, Taiwan’s second largest city, in less than
two hours.
Where to eat
• AoBa This Taiwanese chain has been
around for 48 years. 10 Lane 105,
Section 1, Zhongshan North Road,
Zhongshan District. 2571-3859.
• Hawji Tan-Zai Traditional noodles
with awesome sides such as winesteeped
eggs and salted pig’s liver.
79-83 Jilin Road, Zhongshan District.
2523-5115.
• Shin Yeh Innovative development of
Taiwanese cuisine. 34-1 Shuangcheng
Street, Zhongshan District (four other
locations). 2596-3255.
• Tainan Du Xiao Yue Danzi Noodle
shop famous for its meat sauce and
shrimp-head stock. 12 Alley 8, Lane
216, Zhongxiao East Road Sec. 4, Daan
District. 2773-1244.
Where to stay
• Airline Inn Taipei Affordable site
amid fashion and foodie district. 144
Zhonghua Road Sec. 1, Ximen District.
2388-2466.
• Grand Hyatt Taipei Serious business
accommodation near the Taipei 101
Tower. 2 Songshou Road, Xinyi District.
2720-1234.
• Spring City Resort Thermal retreat
close to the Ketalagan aboriginal area. 18
Youya Road, Beitou District. 2897-2345.
• W Taipei Modern luxury in a busy
location. 10 Zhongxiao East Road Sec. 5,
Xinyi District. 7703-8888.
What to see
• Taipei Confucius Temple The current
structure was completed in 1939.
275 Dalong Street, Datong District.
2592-3934.
• National Palace Museum Intensely
crowded but breathtaking display of five
millennia of arts and culture. 221 Zhishan
Road, Shilin District. 2881-2021.
• Taipei 101 Tower The iconic skyscraper
has an observatory open daily. Admission
fee NT$450. 89/F, 7 Hsinyi Road Sec. 5,
Xinyi District. 8101-8899.
• Taipei Fine Arts Museum A diversity of
works in oils, watercolours and ink-wash.
181 Zhongshan North Road Sec. 3,
Zhongshan District. 2595-7656.
May 2012 57

Latin leverage
George W. Russell looks
at how South American
vineyards are edging
into Hong Kong’s market
With decades of immigration
from France, Italy and Spain,
it’s no surprise that South
Americans are handy at winemaking. Many
of the newcomers settled vast countries
with varied terroir, enabling them to experiment
with grapes best suited to their new
environments.
As a result, wine from South America
is often made from grapes long neglected
in Europe, such as Carménère and Tannat.
More familiar varieties include Malbec,
Pinot Noir and Chardonnay.
Argentina
The region around Mendoza, in the country’s
central-west, accounts for about 70 percent
of Argentina’s wine production. Malbec
dominates, with significant quantities of
Viognier and Merlot.
The Valentin Bianchi estate is known for
consistently good value, and, among reds,
the Elsa Syrah 2010 (HK$60, Montrose
Wines) is no exception. The Astica Sauvignon
Blanc Semillon 2010 (HK$99, Soho
Wines) has a light, bright quality ideal for
fish dishes.
White wines from Mendoza often have
a certain tartness about them. The Alamos
Chardonnay 2010 (HK$75, Watson’s Wine
Cellar) is pineapple-crisp, while the Catena
Alta Chardonnay (HK$388, Watson’s) is rich
and complex.
Brazil
So far, the only Brazilian wines that this
correspondent has seen in Hong Kong come
from Miolo, which distributes a Riesling,
a Touriga, a sparkling white and its Cuvée
Giuseppe blended red. Wines from Casa
58 May 2012
After hours
The Andes Mountains
overlook a vineyard in
central Argentina
Valduga, which recently launched a new
Vinho Rose made from Merlot grapes, can
also be found here. The estate is also known
for its uncomplicated sparkling wines like the
Espumante Brut 130. Other wineries to keep
an eye out for include Boscato, Lidio Carraro,
Miolo, Pizzato, Salton and ViniBrasil.
With the football World Cup being held
in Brazil in 2014, the country is expected to
begin heavily marketing its exports next year.
Chile
There are more than 100 big wineries in
Chile’s 15 wine-growing valleys. Aficionados
in Hong Kong will be familiar with two major
producing areas, the Valle Central and the
Maipo Valley. However, Chile’s terroir ranges
from the semiarid San Antonio Valley, known
for its whites, to the rugged Aconcagua Valley,
home to the iconic Carménère grape.
While the Carménère grape originated
in Bordeaux, only Chile is using it in large
quantities (though there has been some
replanting in Italy). The Casa La Joya
Reserve Carménère 2009 (HK$139, Soho)
from the Colchagua Valley is an aromatically
complex red with a peppery finish.
Baron Philippe de Rothschild started
a joint venture with Concha y Toro that
has resulted in several premium products,
including the Almaviva Cabernet Sauvignon
2006 (HK$700, Platinum Wines).
The Luis Felipe Edwards Chardonnay
2011 (HK$54, Montrose) is a simple, peachy
white ideal for summer barbecues. Winemaker
Eduardo Chadwick’s full-bodied
Arboleda Chardonnay 2008 (HK$145, Wat-
son’s) is redolent of sweet lemons and apples
ahead of a tart finish.
Uruguay
Uruguay is poised to be the next big New
World exporter. With nearly 300 mostly
small producers, Uruguay has been a major
supplier to Brazil and other South American
countries for decades. More recently, it has
ramped up exports to North America.
It is chiefly known for robust reds that
accompany the country’s beef- and lambbased
diet. The Tannat grape is originally
from southwestern France but now is one of
the most prominent Uruguayan varieties,
accounting for at least 40 percent of output.
The Viña Progreso Sueños de Elisa Tannat
2011 (about HK$100, Chateau Lamma),
a product of a joint venture between Burgundy
winemaker Jean-Charles Boisset
and Uruguay’s pioneering Pisano family,
can also be found in Hong Kong.
Other countries
Should Uruguayan and Brazilian wines make
a dent in the market, expect more countries
to follow suit. Bolivia, Ecuador and Paraguay
all have considerable wine industries.
The tropical north of the continent is
largely unsuited to viticulture, although
Peru produces some wine – most of the harvest
is used to make Pisco, a grape brandy –
and Venezuelan wineries make reds, mainly
from Petit Verdot grapes.
George W. Russell, editor at large of A Plus,
can’t wait to taste Guyanese carambola wine.

The statement of understatement
Simplicity in watches
projects a rare level of
effortless artistry and
grace, says Reno Ong
In 2008, a private bidder paid US$1.49
million for a Patek Philippe Sky Moon
Tourbillon at a Sotheby’s auction in
Hong Kong. The sale set the record for the
most expensive modern wristwatch ever sold
at an auction.
The timepiece in question, widely considered
to be one of the most horologically
advanced watches ever manufactured, is
composed of 686 parts and boasts 12 complications,
including a perpetual calendar,
moon-phase indicator and sky chart. And
because of the myriad (not to mention sophisticated)
functions, the Sky Moon Tourbillon
is also hefty. With a diameter of 43mm and
thickness of 16mm, it is rather burdensome
to have on your wrist. Not that you would
ever wear it with any regularity; the price tag
doesn’t exactly scream everyday use.
The complexity of the watch extends to
its aesthetics. The front dial (the watch has a
reverse dial) rivals a small plane’s dashboard
with the amount of information displayed. It
contains four subdials, each with its own little
hands and markers for such things as the day
of the week. The main dial has three sets of
markers, one for hours, one for minutes or seconds,
and another one done in the “railroad
track” style, all of which encircle a backdrop of
Calatrava cross engravings. The same design
follows throughout the outer case.
The intricacy of the Sky Moon Tourbillon’s
aesthetics is yet another reason you wouldn’t
actually wear one. Not exactly gaudy, but it’s a
bit like parading Michelangelo’s David on the
roof of your car: artistic, sure, but not really all
that necessary.
Of course, the timepiece wasn’t actually
meant to be worn daily, rather it was aimed
at collectors who value it for its craftsman-
ship, rarity and obscure features, more than
its value as what is defined traditionally
as a watch. The Sky Moon Tourbillon is an
extreme case in point, but it does highlight a
fundamental shift in horological consciousness.
What started out as an instrument to
keep track of the daily cycle has, over the
course of centuries, evolved into a timekeeper
in the loosest sense of the word, encompassing
chronographs, calendars and orbital displays.
At the same time, the manufacturers that
have led the charge of technological innovations
have also preserved their tradition of
everyday wristwatches. Stunning in their
simplicity, these timepieces have given functional
purists an escape from a horological
preoccupation with complications and convoluted
designs.
Breguet’s Classique 5140, though unflamboyant,
exhibits many of the manufacturer’s
The Breguet Classique 5140
(top) and the Patek Philippe
Sky Moon Tourbillon
aesthetic hallmarks. Blue-finished hour and
minute hands are in what is now known as the
Breguet style, and a subdial at the five o’clock
position indicates seconds, a layout that
allows for a clear reading against the metallic
backdrop.
The off-centre placement of the subdial
adds a modern twist to an otherwise traditional
display, as projected by the markers in
roman type. Both the main dial and subdial
are engraved with the manufacturer’s iconic
guilloche details, a subtle touch that does not
get in the way of core functionality.
Chopard’s L.U.C XPS has gained an avid
following among Hollywood elites seeking an
understated accessory during award shows
and other formal events. (Colin Firth wore
one to the Academy Awards in 2011, the year
he received an Oscar for his performance in
The King’s Speech.) Monochromatic and minimalistic,
the watch is devoid of extraneous
aesthetic features; it has, for instance, notches
instead of numerals as markers.
Yet what’s surprising about the L.U.C XPS
is that Chopard managed to fit a powerful
engine in such a modest piece. Though the
case thickness is a mere 3.3mm, it houses an
automatic movement and boasts a power
reserve of up to 65 hours, whereas you can
expect other watches with similar specifications
to have a power reserve of about 40
hours.
The Italians have a word for what the
Classique 5140 and L.U.C XPS represent:
sprezzatura. Roughly translated, it is a type
of nonchalance that masks the difficulty in
achieving a high level of artistry and grace.
In horology, few things convey this effortless
sophistication than a watch that does not
demand attention.
May 2012 59

60 May 2012
Let’s get fiscal
Get your daily dose of Nury’s humour at www.mrjam.org
Confession: I paid
no tax this year
The Inland Revenue Department
picks the wrong columnist to ignore,
says Nury Vittachi
Ipaid no tax this year. NOT ONE DOL-
LAR. Yep, I’m in the same category as
those evil, disgusting super rich billionaire
dudes who are as rich as Croesus
while having less tax liability than Croesus’
earwax.
How come? Well, it’s NOT because I have
suddenly become an evil, disgusting super
rich billionaire dude. (I’m still working on
that.)
It’s because I didn’t get a tax bill. Some
people would be happy to be missed off the
green envelope list. But in truth I wasn’t.
You see, I’ve written at least four articles explaining
that I LIKE paying tax. I like being
on the moral high ground of paying more
tax than billionaires. And I love the thought
that I personally finance a metre or two of
Hong Kong’s roads, a brick or two in a public
toilet, a light bulb somewhere on a Kowloon
lamppost. Little things please little minds.
But as the weeks went by, and the letterbox
remained empty of green bombs, I
became concerned. What if my tax bill had
gone astray? What if I was jailed for nonpayment
of tax, causing my reader to think me
a hypocrite? Would he stop reading my column,
causing me to become an entirely useless
unproductive person (setting aside the
fact that columnists are already entirely useless
unproductive people)?
I wrote to the Hong Kong tax department,
pointing out that I had sent them money annually
for 25 years and was aggrieved at being
denied the chance to do so this year.
While waiting for a reply, my nerves
were badly jangled by an article I read about
“ What if I was jailed for nonpayment of
tax, causing my reader to think me a
hypocrite?”
American rapper Beanie Sigel. While doing
the normal rapper thing (spending time in
jail, handling illegal weapons, fighting with
street gangs), Sigel failed to file adequate tax
returns. He was arrested. It strikes me that
some people ought to be cut some slack. Can
you imagine a tax official marching up to
Genghis Khan and saying: “Congratulations
on conquering the known world, Mr. Khan,
but unfortunately I have to arrest you for
poor form-filling skills.”
The move to make billionaires behave
in a more moral manner (now doesn’t that
sound like a lost cause?) is spreading. In the
United States, Republican leadership candidates
were forced to reveal their tax bills.
Similar things are happening in the United
Kingdom. Until now, illegal tax evasion
was illegal and other ways of not paying tax
weren’t. But now the U.K. government draws
a line between “tax planning” and “mischievous
avoidance.” Mischievous is a posh word
for “naughty.” The U.K. government has
made it clear that “naughty” is not exactly
the same as “illegal,” but both have to be
fixed. Tax evasion is punished by the courts
and “mischief” by the press and public.
It’s happening in Australia, too. One billionaire
was complaining loudly about the
government’s mining tax, but he lost all
sympathy when a newspaper reported that
his private company hadn’t paid any tax for
three years.
Anyway, back to the Hong Kong tax department.
A reply arrived a few days later. It
was a cryptic little note saying only that a “refund
cheque” had been sent to me. I concluded
that my wife and I must have paid too much in
recent years, so now they’re paying us.
Oh well, it’ll be good to have no tax paperwork
to do. In April, a study of 19,541 deaths
by the American Medical Association revealed
that taxpayers are significantly more
likely to die on the roads on tax filing day
than other days. Forbes magazine offered
three explanations: 1) Stress makes people
drive badly. 2) People drink after completing
their forms. 3) God punishes taxpayers
for lying.
Probably all three are true. In the meantime,
if you are a world conqueror too busy to
fill in your tax form, I have time on my hands.
Nury Vittachi is a bestselling author, columnist, lecturer and
TV host. He wrote the Institute’s first storybook, May Moon
and the Secrets of the CPAs, and the latest one, May Moon
Rescues the World Economy, published in 2010.