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THE MAGAZINE FOR BUSINESS AND FINANCE PROFESSIONALS ACCOUNTING AND BUSINESS MALAYSIA 01/2012

HOW MUCH?HIGHLIGHTS FROM ACCAS SALARY SURVEY

SUSTAINABILITY AWARDS ACCAS ANNUAL CEREMONY: THE RESULTS

OPINION IFRS CONVERGENCEBUDGET 2012 WINNERS AND LOSERS

FAIR PLAYHEALTHY COMPETITION AS ACT COMES INTO FORCE

GET CONNECTED ACCOUNTANCY NETWORKS ARE GOOD FOR BUSINESS

INTERVIEW CHE KHALIB MOHAMAD NOH OF TNBINFLATION TIPS FOR STRATEGIC PLANNINGDIVERSITY IMPROVING CORPORATE PERFORMANCE

MY_cover.indd 1 02/12/2011 12:49

Untitled-9 1 8/3/2011 3:23:39 PMOCBC bank.indd 1 03/08/2011 16:14

THINK AHEADInflation has yet to reach worrying levels, but companies should start thinking about their strategies in dealing with the risks. Page 20

REACHING OUTAs international accounting networks become increasingly popular, what can you do to ensure that joining one translates into success? Page 40

NEW YEAR NEW JOBCheck out thousands of jobs and expert careers advice at www.accacareers.com

TECHNICAL WEBINARS

Automating internal reporting processes www2.accaglobal.com/automate

Integrated reporting www2.accaglobal.com/integrated

In this issues interview, Dato Sri Che Khalib Mohamad Noh FCCA explains why meeting the needs of customers and stakeholders is his overarching goal as president and CEO of Tenaga Nasional Berhad, Malaysias national power company. Page 12

LEVELLING THE PLAYING FIELDThe Competition Act 2010, which comes into effect on 1 January 2012, is a long overdue piece of legislation. The act aligns Malaysia with the 100-plus countries that already have competition-related regulations in place.

Welcomed by both consumers and businesses, the act marks a major paradigm shift in the promotion of competition and protection of consumers, and is in line with international best practice. It puts in place a framework that promotes fair competition, and highlights the countrys commitment to protecting consumer interests while creating a conducive environment to boost both domestic and foreign investment. The new regulations seek to prevent price fixing, bid rigging and the formation of cartels, among others.

One of the most significant benefits is that it can help create a level playing field. Dismantling anti-competitive practices of barriers to entry will benefit companies, especially the small and medium-sized enterprises (SMEs) that have traditionally been locked out of certain industries. The domestic trade, cooperatives and consumerism minister, Datuk Seri Ismail Sabri Yaakob, was reported as saying that the perception that government-linked companies (GLCs) are protected will be erased with the implementation of the Competition Act to ensure fair and healthy competition, with even SMEs being protected.

As with any new legislation, there are always high expectations that it will rectify existing weaknesses or shortcomings. Whether these lofty expectations are met depends very much on no-nonsense enforcement, without fear or favour. This will benefit both consumers and producers; for example, curbing anti-competitive practices may result in lower prices for consumers. Accountants and CFOs will also be impacted by the new rules, but are they prepared for it? For more detailed coverage on the Competition Act 2010, see our cover story on page 16. Lastly, on behalf of Accounting and Business Id like to thank all our readers for your support over the past year and wish you a happy 2012!

Lee Min Keong, abeditor@accaglobal.com

3Editors choice

MY_B_Edletter.indd 3 02/12/2011 16:15

Audit period July 2009 to June 2010138,255

Features12 Powering aheadAs CFO of power utility Tenaga Nasional Berhad, Che Khalib Mohamad Nor FCCA is a master at balancing stakeholder needs

16 A level playing fi eld The new Competition Act is good news for smaller companies

20 On guardWith the threat of infl ation looming large, preparation is everything

24 All together now Workplace diversity is key to business success

28 Front of houseInternal audit is coming out from behind the scenes

30 Click onAs a training tool, e-learning is set to expand even further

32 World viewThe benefi ts of adopting IFRS are increasingly being felt around the globe

VOLUME 15 ISSUE 1

Editor-in-chief Chris Quickchris.quick@accaglobal.com +44 (0)20 7059 5966

Asia editor Colette Steckelcolette.steckel@accaglobal.com +44 (0)20 7059 5965

International editor Lesley Boltonlesley.bolton@accaglobal.com +44 (0)20 7059 5965

Malaysia editor Lee Min Keong abeditor@accaglobal.com

Chief sub-editor Eva Peaty

Sub-editors Peter Kernan, Vivienne Riddoch

Design manager Jackie Dollar

Designers Robert Mills, Jane C Reid

Production manager Anthony Kay

Advertising James Fraserjfraser@educate-direct.com +44 (0)20 7902 1210

Head of publishing Adam Williams

Printing Times Printers

Pictures Corbis

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

ACCA Connectmembers@accaglobal.com +44 (0)141 582 2000

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

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

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

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

29 Lincolns Inn FieldsLondon, WC2A 3EE, UK+44 (0) 20 7059 5000

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AB MALAYSIA EDITIONCONTENTSJANUARY 2012

MY_Contents.indd 4 05/12/2011 17:17

ACCA NEWS56 Take fi ve Hints to help you plan your CPD for 2012

57 Dean Westcott Embrace technology to control our destiny, urges the ACCA president

58 International Assembly Senior members gathered in London to discuss the challenges that lie ahead

60 Devanesan Evanson ACCA Malaysias president celebrates the benefi ts of IFRS convergence

61 News ACCA deputy president Barry Cooper receives a warm welcome in Kuala Lumpur

62 Prepare to be a powerhouse Delegates rise to the challenge at the ACCA Malaysia annual conference

64 Developing disclosure The ACCA Malaysia Sustainability Reporting Awards highlighted the work still to be done

66 Student service Exam registration and results fully online

BRIEFING06 News in pictures A different view of recent headlines

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

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

VIEWPOINT23 Errol Oh Financial standards must be fl exible

27 Cesar Bacani Ernst & Youngs regional restructuring means greater governance

35 CORPORATE35 The view from Paul Law FCCA of Luk Fook Group, plus news in brief

36 Delivering the goods How to keep large-scale projects on time and on budget

39 PRACTICE39 The view from Manohar Benjamin Johnson of PwC Malaysia, plus news in brief

40 Network know-how Local fi rms should make the most of international accountancy networks

Regulars

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

Your sector

TECHNICAL44 Update The latest from the standard-setters

46 Change for the better A wide range of reforms are helping Asia weather the storms of the fi nancial crisis

48 CPD: IAS 36 Understanding the implications of an amendment on the size of cash-generating units

52 Time for an overhaul? With no new tax incentives, the 2012 Budget runs the risk of deterring foreign investors

CAREERS54 World view ACCAs fi rst global salary and career survey shows high levels of career satisfaction among members

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

MY_Contents.indd 5 02/12/2011 17:57

01 Dissident artist Ai Weiwei handed over a US$1.3m bond to the Chinese government in order to start an appeal against a US$2.4m tax bill

02 Hong Kong Disneyland opened Toy Story Land, part of a US$500m expansion project

03 Olympus went into meltdown after admitting losses going back more than 20 years

04 Shoppers queued overnight to buy Versace-branded clothes from H&M in Shanghai

News in pictures6

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05 Thai government flood relief workers wore distinctive orange waterproof leggings at a public ceremony highlighting the countrys worst flooding in more than 50 years. The government announced a 100 billion baht recovery plan

06 Singapores former minister mentor, Lee Kuan Yew, proposed a S$100m bilingualism fund to promote the teaching of English and mother-tongue languages to pre-schoolers

07 A Christmas tree made of pure gold, worth 1.5 billion yen, went on display at Tokyo jeweller Ginza Tanaka. The gold used in the 2.4 metre-high tree weighed 12kg

08 Palestinian students from Jericho recreated Pablo Picassos Dove of Peace at the foot of the Mount of Temptation. The UN initiative to promote world peace was directed by aerial artist John Quigley

7

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STAYING POWERThe top three countries in the 2011 AT Kearney Global Services Location Index India, China and Malaysia have held their positions since the inception of the index, thanks to their deep talent pools and cost advantages. Asia ranks highly throughout the top 10.

M&A MARKET BUOYANTFinancial services mergers and acquisitions (M&A) in Asia are expected to accelerate in late 2011 and 2012, according to a new report from PwC, Emerging Opportunities: Financial Services M&A in Asia 2011. A large majority of 375 Asia-based senior executives are extremely bullish about the prospects for M&A in their market, with respondents from Malaysia among the most confident.

KEY:CHINA: US$16,733M IN 78 DEALSAUSTRALIA: US$10,442M IN 104 DEALSJAPAN: US$8,207M IN 104 DEALSSOUTH KOREA: US$6,514M IN 29 DEALSHONG KONG: US$5,453M IN 39 DEALSINDIA: US$2,054M IN 88 DEALSTHAILAND: US$1,326M IN 17 DEALSMALAYSIA: US$912M IN 18 DEALSINDONESIA: US$799M IN 51 DEALSTAIWAN: US$716M IN 15 DEALSSINGAPORE: US$547M IN 16 DEALSPAKISTAN: US$279M IN 8 DEALS

RANK: 32SINGAPORE

RANK: 3MALAYSIA

RANK: 2CHINA

40%Percentage of Chinese millionaires considering emigrating to the US, according to Knight Frank.

US$3.5BNAmount planned to be raised by Chow Tai Fook, the worlds biggest jeweller, in a Hong Kong IPO.

30%The leap in Chinas gold imports from Hong Kong in September.

4.5 LITRESAnnual per capita wine consumption in Hong Kong, the highest in Asia.

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RANK: 1INDIA

EASY BUSINESSSingapore has topped the Doing Business survey for the second year in a row. Through indicators benchmarking 183 economies, the report from the World Bank and the International Finance Corporation tracks changes in the regulations applying to domestic companies in 11 areas in their life cycle.

ASIAN FS M&A BY DEAL VALUE IN 2010

News in graphics8

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8.5%The percentage fall globally for the total tax rate for small and medium-sized enterprises since 2006, according to PwCs Paying Taxes 2012.

1.84%The percentage of UK gross domestic product reliant on accounts receivable finance, according to GE Capital.

50%The level of luxury purchases by Chinese consumers taking place overseas, of which half take place in duty-free shops.

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Corporate tax 2011

Indirect tax 2011

Corporate tax 2010

Indirect tax 2010

HEAVY-HANDED TAXATION MAKES WAY FOR THE LIGHTER TOUCHAccording to KPMG Internationals annual Corporate and Indirect Tax Survey, corporate tax rates have been steadily falling for a decade, while goods and services tax (GST) and value added tax (VAT) systems have been introduced, rising to higher rates and applying to more items as indirect tax systems mature.

1 ASIA: DOWN FROM 24% 2 LATIN AMERICA: DOWN FROM 25.3%3 EUROPE: UP FROM 20%4 OCEANIA: DOWN FROM 24.2%5 NORTH AMERICA: DOWN FROM 23.7%6 AFRICA: SAME AS 2010

7 ASIA: UP FROM 11.6%8 LATIN AMERICA: DOWN FROM 13.9%9 EUROPE: SAME AS 201010 OCEANIA: UP FROM 12%11 NORTH AMERICA: SAME AS 201012 AFRICA: UP FROM 13.9%

KEY

GLOBAL FRAUDDespite a significant drop in fraud cases, global executives are reporting increased vulnerability to nearly all types of fraud, according to Krolls Global Fraud Report, conducted in conjunction with the Economist Intelligence Unit and surveying the sentiments of more than 1,200 senior executives worldwide.

1 Corruption and bribery 2 Money laundering 3 Internal financial fraud or theft4 Vendor, supplier or procurement fraud5 Regulatory or compliance breach

6 Theft of physical assets or stock 7 IP theft, piracy or counterfeiting8 Management conflict of interest9 Financial mismanagement10 Information theft, loss or attack

22.8%ASIA

1

2

25.1%LATIN

AMERICA

3

20.1%EUROPE

4

23.8%OCEANIA

5

22.8%NORTH AMERICA

6

28.3%AFRICA

7

11.7%ASIA

8

12.8%LATIN

AMERICA

10

12.5%OCEANIA

12

14.2%AFRICA

44%

41%40%

39%38%

25%

50%47%

46%

1 2 3 4 5 6 7 8 9 10

KEYXX% Incidences of fraudXX% Percentage who see themselves as highly or moderately vulnerable

42%20%

4%

10%11% 16%

19%19%21% 23%25%

11

5%NORTH AMERICA

9

19.7%EUROPE

9

INT_B_graphics.indd 9 02/12/2011 15:13

IFRS WILL TAKE FIVE YEARSFull adoption of International Financial Reporting Standards (IFRS) will take time, according to Inland Revenue Board (IRB) chief executive Datuk Dr Mohd Shukor Mahfar. Public limited companies would be the first to use the system, he said. Since it is a new thing here, we reckon it will take up to five years for the full implementation of IFRS in Malaysia, he said, adding that there is a need to have a standard accounting system so as to present the same picture for an entity in the various tax jurisdictions.

JUNK FOOD TAX REJECTEDThe Singapore Ministry of Health has explored the idea of levying higher taxes on food that is high in sugar and saturated fats, but has no plans to implement this for now, said minister of state for health Dr Amy Khor. Countries such as the US, Denmark, France and Canada have introduced taxes on sugared drinks, with Denmark the first country to tax foods that are high in saturated fat. Khor noted that there is no international consensus on

the effectiveness of such taxes, nor is there any clear evidence that they lower rates of obesity.

BIG FOUR ARE TOP EMPLOYERS The Big Four made a clean sweep of Malaysias 100 Leading Graduate Employers awards. PwC once again topped the 2011 ranking its third consecutive year followed by Ernst & Young, KPMG and Deloitte, while Maybank took fifth spot. More than 12,000 students and recent graduates took part in the survey. PwC Malaysia partner Pauline Ho said: Were fortunate that PwCs ongoing efforts in diversity, inclusion and professional growth opportunities resonate with our young graduates who choose to begin their careers with us. We also work hard at understanding what Generation Y graduates seek from their employers through our Millennials at Work survey. STEEP FALL IN FACTORY OUTPUTChinas factory sector shrank the most in the 32 months in November as new orders fell, a purchasing managers

index (PMI) survey showed, reviving worries that China may be slipping towards a hard landing and fuelling fears of a global recession. The steep fall in the HSBC flash PMI, to 48 in November from 51 in October, largely reflected domestic weakness as both output and new orders shrank.

MORE FTAS SOUGHTMalaysia, which aims to double its exports by 2015, hopes to sign free trade agreements (FTAs) with Australia, Turkey, the European Union (EU) and members of the Trans-Pacific Partnership (TPP) in 2012. International trade and industry Minister Datuk Seri Mustapa Mohamed said that, at present, 61% of Malaysias total trade was with FTA partners and he expected a 24% jump when it sealed FTAs with the EU and TPP. The TPP, a proposed free-trade pact covering nine Asia-Pacific Economic Co-operation (APEC) members the US, Australia, New Zealand, Vietnam, Singapore, Malaysia, Brunei, Chile and Peru accounts for about 35% of the world economy.

M&AS TO CONTINUE DOMINANCE PwC says that mergers and acquisitions (M&A) will continue to dominate the Malaysian banking sector moving forward, as rising competition and additional capital requirement regulations will drive banks to merge and become bigger entities to survive. PwC Malaysia partner Soo Hoo Khoon Yen said that the local banking industry could also garner attention from regional banks in their quest to go global. PwCs survey, Emerging Opportunities Financial Services M&A in Asia 2011, which was conducted among senior executives, revealed that respondents from Malaysia are among the most confident in Asia over 80% predict higher deal activity for the year ahead, with nearly half (49%) considering an M&A deal.

RICH PROVIDE CULTURAL BOOSTMalaysias wealthy are starting to contribute towards the development

EUROPE CRISIS IMPACT LIMITEDAny direct contagion from Europe on Malaysias financial system and institutions would be limited because of the countrys negligible exposure to eurozone debt, said second finance minister Datuk Seri Ahmad Husni Hanadzlah. In the short term, however, stock market volatility would be inevitable. He said that the impact of the eurozone debt crisis on Malaysias real economy through trade would be limited, as the countrys trade exposure had increasingly been shifting away from the West to developing and emerging economies in the East. Exports to the European Union in 2010 accounted for just 10% of Malaysias total trade volume. Trade with India, on the other hand, rose 35% in the first nine months of 2011, while exports to China grew 43% last year from 2009. Going forward, Malaysias economy primarily would be driven by domestic demand.

Indias minister of commerce, Anand Sharma, on a recent visit to Malaysia. Trade between the two countries grew by 35% in the first nine months of 2011

10 News round-up

MY_B_newsroundup.indd 10 02/12/2011 12:40

P20

President Hu Jintao (centre) at the APEC CEO summit, held in Honolulu in November

CEOS DRIVE CHANGETwo-thirds of CEOs surveyed by PwC believe that leaders of the 21 Asia-Pacific Economic Cooperation (APEC) economies should play a key role in eliminating trade barriers within the region. In addition, 63% of the 320-plus Asia-Pacific CEOs surveyed said that establishing free trade among their nations is critical to the success of their companies.Doing business in domestic Asian markets is quickly becoming the main

avenue for growth in the APEC economies, said Dennis Nally, chairman of PwC International, ahead of the APEC CEO summit held in Honolulu in November. Free trade among all the nations in the region will reduce their reliance on low-cost manufacturing for export to more mature economies. To drive growth, CEOs want to expand in Asias fast-growing consumer markets and to extend their presence in the evolving markets for services. More business leaders (44%) are making their largest investment over the next three to five years in China over any other APEC economy. Nearly a third of planned investments are targeted at expanding capabilities in services by investing in managerial, research and development and financial operations in China.

of the arts and culture scene in the country. A joint survey conducted by UBS and Insead Business School in 10 Asian countries revealed that 5% of Malaysian philanthropists had contributed towards the development of the arts and culture scene in Malaysia, an emerging trend that is likely to grow. This trend is also observed within Asias increasingly globalised younger generation who revealed that they are more open and inclined to contribute to the arts, civil rights and the environment.

JAPANS WOES CONTINUE Bank of Japan governor Masaaki Shirakawa warned that the country would continue to face a severe situation as Europes debt crisis and a strong yen weigh on its post-quake economic recovery. Japan fell into a trade deficit in October, reversing a year-earlier surplus, with record flooding in Thailand pounding the operations of Japanese automakers and electronics firms that have plants in the country. Toyota and others withdrew earnings forecasts as they assess the scale of disruption, which came as Japanese firms were near to restoring output to normal levels at home after the March earthquake and tsunami shattered component supply chains.

SUPERMARKETS LOOK TO INDIAIndia has thrown open its US$450bn retail market to global supermarket giants, approving its biggest reform in years that may boost sorely needed investment in Asias third-largest economy. The worlds largest retail group, Walmart, and its rivals see Indias retail sector as one of the last frontier markets, where a burgeoning middle class still shops at local, family owned merchants. The government will allow foreign direct investment (FDI)of up to 51% in multi-brand retail as supermarkets are known in India. It will also raise the cap on foreign investment in single-brand retailing to 100% from 51%.

INVESTORS WANT STABILITYForeign investors hardly view governance as a problem in Malaysia and are more concerned with political stability, according to international trade and industry deputy minister Datuk Mukhriz Mahathir. He said that stability had been damaged by the street protest in Kuala Lumpur last July and gave this as a reason for his support of the new Peaceful Assembly Bill tabled in Parliament in November, dismissing suggestions that the law would erode civil freedom.

MALAYSIA LACKS TALENTA World Bank report has said that Malaysia is at risk of developing

two sides to its economy as its investment incentives shine but internal talent lags behind. The report noted that Malaysias greatest advantage is its low-cost base rather than its skills, which come close to the levels seen in low-income countries. Malaysia can provide businesses with an attractive package to compete in global markets, said the report, noting that it included infrastructure, regulations, fiscal incentives and political stability. It added, however, that Malaysia could realise larger gains by tackling structural reforms to increase competition and competencies in the economy rather than improving the business environment.

11AnalysisFIVE TIPS TO PLANNING FOR INFLATIONInflation is heating up enough for some finance experts to warn that companies should start taking it into account in their strategic planning, which is causing economists and consultants to dust off old books for guidance.

MY_B_newsroundup.indd 11 05/12/2011 15:12

While soaring fuel prices and foreign exchange fluctuations directly impact the bottom line

of Tenaga Nasional Berhad (TNB), the man at the helm of the giant corporation is concerned with more than maximising profits.

Dato Sri Che Khalib Mohamad Noh FCCA, president and CEO of Malaysias national power company, instead cites meeting the conflicting needs of customers and stakeholders as the most challenging aspect of his job.

The customers demand good services and want to ensure the tariff remains low, while the shareholders and investors want the organisation to always provide good services, good dividends and high profit at all times.

Che Khalib also explains that there is a conflict between the desires of staff, politicians and regulators.

Our [30,500] employees want TNB to take good care of them with better remuneration and benefits. On the other hand, politicians want to ensure good services without

burdening customers, while regulators want to make sure that services are of high standards, says Che Khalib, acknowledging that while TNB has a responsibility to satisfy everyones needs as much as possible, it cannot always succeed.

We always try to let everyone land at a common ground though we cannot satisfy everyone.

Headhunted by governmentChe Khalib, 46, had come a long way even before he was handpicked by

the Malaysian government to head the company seven years ago. Born in Bayan Lepas, Penang, Che Khalib was educated at Penang Free School before pursuing his A-levels. Wanting to become an accountant, he obtained the ACCA Qualification aged 23 and quickly climbed the corporate ladder, holding key positions in various public-listed firms.

Che Khalib points out that the ACCA course helped him become more disciplined and taught him that perseverance is necessary in order to

POWER BROKERFor Che Khalib Mohamad Noh FCCA, leading Tenaga Nasional Berhad means satisfying the confl icting needs of the power utilitys stakeholders, as well as maximising profi ts

The tips*Ensure that you pass the ACCA examination as soon as possible. *There is no short cut. Remember that ACCA provides you with a good foundation, but at the end of the day, you still have to work hard.

*With the knowledge that you acquire and by working hard, you should be able to accelerate your career to the level that you desire.

*ACCA prepares you with the right attitude. You must also use all that you have gained during your ACCA course to help you in your career.

EMPLOYEES WANT TNB TO TAKE GOOD CAREOF THEM WITH BETTER REMUNERATION. ON THEOTHER HAND, POLITICIANS WANT GOOD SERVICESWITHOUT BURDENING CUSTOMERS

12 CEO interview

MY_F_CheKhalib.indd 12 02/12/2011 12:46

13

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The CVmanage and lead organisations.The ACCA course teaches you perseverance. Going through the ACCA examinations means a lot of sacrifices. It prepares you, teaches you to think and inculcates the right attitudes for your career, he explains.

The course provides you with knowledge, a good foundation and a platform for you to move on from, but at the end of the day, it is you that will have to leverage all that to progress, he adds.

Youngest CEOProgress he did as Che Khalib became one of the youngest CEOs in Malaysia, when still in his early 30s, when he was appointed CEO of integrated water supply company Ranhill Utilities in 1999. Prior to joining TNB, he was the managing director and chief executive of KUB Malaysia, which is involved in the information technology, property, engineering and construction industries.

All my past jobs had different challenges and excitement. I liked all of them and never regretted going into any of them. When I was at Ranhill, the challenge was to get the company listed. At KUB Malaysia, the company was in financial difficulties and I had to turn around the company. Now at Tenaga, we have to improve its services and financial position, he says.

However, while the challenges at TNB, which has RM74.1bn in assets and a customer base of close to eight million, may be unique to the company, what is similar is the way a CEO has to tackle them.

There were challenges at all the organisations that Ive worked for. They had their ups and downs and it is how you manage them that matters, he adds.

Under his leadership, TNB has won numerous awards, a recent one being the prestigious Prime Ministers Industry Excellence Award. Che Khalib

was named CEO of the Year at the inaugural Asia Power & Electricity Awards 2010 in Singapore. The award honours and recognises a corporate leader for his exemplary skills in growing, expanding and transforming an organisation towards being a profitable, responsible and sustainable

Dato Sri Che Khalib Mohamad Noh FCCA was appointed as president and CEO of Tenaga Nasional Berhad (TNB) on 1 July, 2004. He is also a member of the Malaysian Institute of Accountants.

Che Khalib started his career with Ernst & Young and later joined Bumiputra Merchant Bankers Berhad. Between 1992 and 1999, he served at several companies within the Renong Group, including highway operator Projek Lebuhraya Utara-Selatan (PLUS).

In 1999, he joined Ranhill Utilities as CEO, and was managing director and chief executive of KUB Malaysia prior to joining TNB. Che Khalib served as a member of the board and executive committee of Khazanah Nasional Berhad from 2000 to 2004.

He also served on the boards of several of the United Engineers Malaysia (UEM) group of companies and Bank Industri & Teknologi Malaysia.

power company in the region. Che Khalib was also awarded Malaysias CEO of the Year 2008 by the New Straits Times and American Express.

Che Khalib attributes his corporate success to previous superiors who gave him the opportunities to grow. I am glad they had trust in me. For example, when I was at Renong, Tan Sri Halim Saad, the then CEO of the Renong Group, gave me a lot of room to grow and provided me with the exposure required to be a CEO. Im very thankful for what my former bosses did to help me grow my career, he says.

Balancing actChe Khalib believes there should be a balance between having commercial goals and caring for society. You have to be commercially driven and at the same time not be burdening your buyers and consumers.

Basically, there must be balance in everything. You must work together with customers in how to grow your business but at the same time you want to create brand loyalty. You should not be just preaching about profit but the quality of life of your customers as well, he adds.

Che Khalib also applies a similar philosophy in managing his staff to ensure higher productivity. Life must

have a balance. My principle is that no one should stay in the office until very late. I encourage our staff, especially my senior management, to go back home before 8pm and have dinner with their families. A happy employee comes from a happy family, he says. He also believes that his staff can

THERE MUST BE BALANCE IN EVERYTHING. YOUMUST WORK TOGETHER WITH CUSTOMERS INHOW TO GROW YOUR BUSINESS BUT AT THE SAMETIME YOU WANT TO CREATE BRAND LOYALTY

14

MY_F_CheKhalib.indd 14 02/12/2011 12:46

The basicsTNBTenaga Nasional Berhad (TNB) is the largest electricity utility in Malaysia with almost RM74.1bn in assets. It is listed on the Main Board of Bursa Malaysia and employs about 30,535 people to serve a customer base of an estimated 7.9 million in Peninsular Malaysia, Sabah and Labuan.

TNBs core businesses are in the generation, transmission and distribution of electricity. In Peninsular Malaysia, TNB is a major contributor to the total industry capacity, through six thermal stations and three major hydroelectric schemes. The company also manages and operates a comprehensive transmission network the National Grid.

Spanning the peninsula, the grid links TNB power stations and independent power producers to the distribution network.

TNB is also involved in a number of diversified activities linked to the power industry.

whenever his schedule permits. He has five children two girls and three boys. His eldest daughter is studying accounting at the London School of Economics in the UK, while his second child is currently doing his A-levels and aims to pursue finance and accounting as a career.

I discourage my children, especially my sons, to be accountants but that is what he wants to be. Probably, they see their father as an idol! Ive asked them to choose something else. I dont need many accountants at home but they want to enter the profession as it is multi-skilled, he says. His

home may eventually end up full of finance experts as his wife is also an accountant, heading the finance and human resource department of an information technology company in Kuala Lumpur.

As for Che Khalib, he believes he made the right decision in choosing accountancy as a career all those years ago. He remains committed to steering the power company towards its goal of being among the leading energy-related corporations in the world.

Dalila Abu Bakar, journalist

achieve higher productivity if they have to finish their work early every day.

Many people think that spending more time in the office makes you more productive or hardworking. But I think productivity is increased because they have to finish work early and cut down on time wasting, he says.

Family manAt home, Che Khalib enjoys singing karaoke with his family, and in particular, slow rock songs. He also enjoys reading books, especially on corporate successes and looks forward to travelling with his family

15

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The Competition Act 2010, which came into force on 1 January 2012, finally brings Malaysia up to speed with the

rest of the world. According to law firm Skrine,

its implementation brings the country in line with more than 100 jurisdictions worldwide, including its Association of Southeast Asian Nations neighbours Indonesia, Singapore, Thailand and Vietnam.

The act puts in place a framework to promote fair competition, reflecting the Malaysian governments commitment to protect consumer interests. It aims to create a conducive environment to boost both domestic and foreign investment, and in the process help Malaysia become a high-income economy.

Level playing fieldThe long overdue legislation has been welcomed by almost all quarters including consumers and businesses. Jennifer Lopez, country head of ACCA Malaysia, believes that the act will have a significant impact on how commercial practices are structured and implemented in the future.

The enforcement of this act which covers all firms including government-linked companies (GLCs) is a positive step towards levelling the playing field and will demonstrate to foreign investors the governments seriousness in promoting fair competition, she says.

There is no doubt about the relevance of this act to Malaysian businesses, as it allows for greater

transparency in business dealings and will help uncover unscrupulous transactions which are hurting the smaller players in the market, states Lopez. The full effect of the act will be felt in the long term, as it will help create a more sustainable environment for competition among Malaysian businesses, she adds.

Datuk Seri Ismail Sabri Yaakob, minister of domestic trade, cooperatives and consumerism, has also said the act would give foreign investors more confidence; eradicating the perception that GLCs have always been protected by the government.

Datuk Ameer Ali Mydin, managing director of local wholesaler and retailer Mydin Mohamed Holdings, is relieved about the implementation of the act. I can only say it in one word finally, as industry, especially us in the wholesale and retail sector, have been waiting for it to come into effect for ages, he says. There are cartels in the retail industry and as retailers we hope this act will be able to bring this under control, he says.

Retailers like Mydin buy and sell goods with small margins and when prices go up due to some wholesalers or manufacturers controlling the prices, the company ends up bearing the brunt of consumers dissatisfaction, he says. They think that retailers are making high margins, he adds.

Against such a backdrop, this act is very relevant especially in propelling the retail industry to the next level, Ameer says. He believes the new law will create a more dynamic and

competitive landscape, and increase competition. It is also a great opportunity for growth for the local retail players, as currently foreign players are very dominant in modern trade, he says.

Ending market dominance Competition to win customers is normal in any economy where there are many companies operating, Dr CW Cheah, director and principal of JayCee Asia-Pacific Consulting, told delegates at a recent Malaysian Institute of Accountants-hosted event.

He also explained the ins and outs of the act itself. The Competition Act prohibits agreements that have an anti-competitive object or effect. For example, if a contract is to control the price of a final product the purpose of agreement is to constrain or contain business it is illegal, he said.

Speaking at the ASEAN Federation of Accountants 2011 Conference, Cheah said that a company can be relieved of its liability under section 5 of the act, even if the agreement has an anti-competitive effect, but it has to satisfy an additional legal test. The agreement has to have significant identifiable efficiency and social benefits and be proportionate to the detrimental effect on competition.

Cartel businesses that meet behind closed doors to agree to fix prices, share markets, rig bids, limit production or supply have the object of preventing, reducing or distorting competition, he added.

Meanwhile, under section 10, prohibitions on market dominance

A FIGHTING CHANCEThe implementation of Malaysias Competition Act means that smaller companies, struggling against unfair business practices, will no longer be fi sh out of water

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and power disallow conduct which amounts to abuse of a firms dominant position in any market. When the act refers to conduct, it means any business behaviour, he added.

Companies must gear upCheah called on companies to be prepared to avoid falling foul of the new regulations. Companies need to educate and alert employees on the relevant changes and the consequences of breaching the law. This includes

consequences for the company and individual, which include heavy fines, jail or both.

Malaysian businesses need to shield themselves from bad and questionable business practices, he said. Companies should also encourage

staff to report wrongdoing and if they notice questionable conduct, the authorities should be notified.

ACCAs Lopez says the act means accountants need to embrace their role as strategic advisers. Softer skills and business awareness are

THE ACT ALLOWS FOR GREATER TRANSPARENCY AND WILL HELP UNCOVER TRANSACTIONS WHICHARE HURTING SMALLER PLAYERS IN THE MARKET

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critically important traits for finance professionals across all sectors to develop, she says.

Enforcement of the act should increase the competition level among businesses, so CFOs and accountants should keep abreast of new opportunities to seize within the environment, she says. This development more than ever emphasises the increasingly strategic role that finance professionals play in organisations.

In addition, Lopez says that typically, when a new regulation is enforced, there will be the usual adjustment issues. Companies have to understand the new rules, review their current business practices and make amendments where necessary so that compliance is achieved, she says.

The role of MyCCThe Competition Act will be enforced by the Malaysian Competition Commission (MyCC), which was set up under the Competition Commission Act 2010. It is empowered to carry out functions that aid the creation of a favourable competition landscape in Malaysia (see box, left).

While it is still in the process of building up capacity to handle its mandate, its CEO, Shila Dorai Raj, says that the path ahead for the commission is clear. It is currently recruiting staff and formulating guidelines, she says. At present, the MyCC is in the midst of finalising two guidelines the Complaints Guidelines and Market

Definition Guidelines.The Complaints Guidelines

will help those who wish to lodge complaints about infringements of the prohibitions under the act. The Market Definition Guidelines will guide the MyCC on how to define the market when an investigation on the possible infringements of the act is launched, she points out. When the guidelines are finalised, the MyCC will release them for public consultation and review.

The formulation of these guidelines shows the MyCCs commitment to maintaining its responsiveness to the needs and concerns of the Malaysian public, as well as ensuring that any issues in respect of the acts application will be handled in an efficient, effective and professional

The Competition Act 2010 aims to foster a market landscape that promotes healthy competition while protecting the interests of consumers. It bans anti-competitive practices and abuse of dominant position.

On conviction, the maximum penalties for corporate bodies are a RM5m fine for a first offence and a RM10m fine for subsequent offences. Individuals face a RM1m fine, a five-year jail term or both for a first offence, and a RM2m fine or a five-year jail term for subsequent offences. If a corporate body is convicted under the act, individuals involved can also be punished.

The Malaysian Competition Commission (MyCC) was officially established on 1 June 2011 to enforce the Competition Act 2010, under the Competition Commission Act 2010. On 1 April, 2011 former chief judge of Malaya, Tan Sri Siti Norma Yaakob, was appointed chairman of the MyCC, along with several commissioners.

The MyCC will issue guidelines for the implementation and enforcement of competition regulation, monitor the market for non-compliance and enforce the legislation, where necessary. It may act as advocate for competition matters and will carry out economic competition-related studies and raise public awareness about the issue.

*IN BRIEF: THE COMPETITION ACT 2010

manner, Shila says.She adds that the MyCC is very

serious about its role in educating the public on the new legislation and its impact. An ample grace period of 18 months was provided to create public awareness and for all the relevant industry players to understand how the act will impact their businesses. The act was passed by parliament in April 2010.

In line with this, MyCC has conducted advocacy as well as training programmes targeted at various stakeholders. Arising from this, we expect some regulatory reform by the government and also compliance programmes by the private sectors and trade organisations.

Asha Gopalan, journalist

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Asia Ads.indd 2 30/11/2011 11:40

No one imagines that Asians will be pushing wheelbarrows full of banknotes to the grocery store any time soon,

but inflation is heating up enough for some finance experts to warn that companies should start taking it into account in their strategic planning.

Although the biggest emerging Asian economies may be somewhat protected by various kinds of capital restrictions (such as strict loan-to-value limits on mortgages in China), and generally strong sovereign cash positions, experts say that many Asian companies may still face some serious inflation risks in the near future.

So how do you prepare? While most Asian executives have dealt with rocky macroeconomic reversals at one time or another, most people familiar with the sustained inflation of the 1970s are now long retired. To try to figure out the best response, some economists and consultants are now dusting off 30-year-old playbooks to look for guidance. Here are their top recommendations:

1 Dont wait until it hurtsAs with most preventative measures, the time to prepare for inflation is before you think youll need it.

Its a sweet poison, explains Ulrich Pidun, a principal in the Frankfurt office of The Boston Consulting Group (BCG) and co-author of two papers on inflation. You dont feel the threat because it feels so nice at the beginning.

In an inflationary environment, the first symptom tends to be a strong growth in sales. If some of your costs, such as labour, arent climbing as quickly, this can seem like a real gain, says Pidun. Only later will your costs begin to creep up and if they start to outstrip your ability to raise prices, your margins will suffer and you could find yourself in a serious bind.

Squeezed margins are already taking their toll in China, where thousands of factories shut in 2011. A consolidation is taking place in the market, with better run and better capitalised players grabbing market share and becoming volume players, says Shaun Rein, managing director of the China Market Research Group and author of The End of Cheap China.

2 Keep costs downTheoretically, it makes sense to take on more debt just before an inflationary period, on the expectation that those debts will be cheaper to pay off down the line. However, BCG research has found that companies that carried high leverage in the 1970s actually tended to suffer in the stock market.

Lack of cash can reduce flexibility at a time when you need it most, Pidun argues. Your debt becomes cheaper in real terms, but the more important effect comes from whether or not you can afford to do your investments that are required. In this sense, having debt is negative because you may forego certain attractive investments just because you

cannot pay for it, because asset prices inflate as well during inflation.

BCG argues instead that the better policy is to try to cut costs as much as possible, giving the company more flexibility to handle inflationary pressures later on.

Certainly, companies look for possibilities in writing long-term contracts that reign in costs, finding instruments to hedge rising materials costs, and in looking for ways to hold down labour expenditures.

In China, rising wages are seen as a key component of inflation, rising so quickly that many companies are nearing a crisis point. Wage inflation is a huge issue at the moment and actually its getting to the stage where unless its curtailed you could start to see companies struggle and even fall over, says Russell Brown, managing partner of LehmanBrown, an accounting and business advisory firm specialising in Chinese companies.

This is not only an issue in China. A recent survey by Vietnamese employment agency Navigos Search found that in 2011, more than 70% of managers and executives, and 68% of general staff, saw raises of at least 11%.

As a result, some Chinese companies are doing what developed countries did 10 years ago and outsourcing their work to China Western China, that is, where wages are lower and the government is offering tax incentives until 2020 to employers who open new factories and facilities.

In general, although the recent trend has been towards making more costs variable, in an inflationary environment, it is better to try to create more fixed costs, Pidun says.

INFLATION WATCHWith the threat of infl ation looming large in Asia, companies would do well to act now to prepare for the challenges and opportunities that they could be presented with

WAGE INFLATION IS A HUGE ISSUE AT THE MOMENT. UNLESS ITS CURTAILED YOU COULD SEE COMPANIES STRUGGLE AND EVEN FALL OVER

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AP_F_inflation.indd 20 02/12/2011 12:14

Just how serious might those rises be? One key component to watch is where the dollar is trading. A study by Steve Hanke, a professor of applied microeconomics at Johns Hopkins University, found that 50% to 60% of the volatility in most commodities ties back to movements in the dollar. As most major commodities trade in dollar terms, any decline in the dollar will serve to drive up the price of the commodity.

But dont expect Asia to try to diversify out of the dollar anytime soon. Hanke says that reserve currencies typically last a very long time. The average life of these things has been over 300 years each. Its very hard to challenge a dominant world currency, he says.

3 Squeeze your working capitalIf raw material prices rise consistently, companies may start to hoard to protect themselves from further increases. But more inventory in the warehouse translates into more money tied up in working capital and that can make the company much less efficient. Shipping is also

becoming an issue, says Hanke not just because of fuel costs but because long sea voyages can expose cargo owners to shifts in cost and more expensive trade financing.

Growth in receivables may be even more dangerous. For example, if a company with US$1bn in sales grows by 5% a year, it will need US$50m more in working capital. However, if inflation is climbing at 10%, even if the economy is still moving, working capital is suddenly US$150m.

This can really pose a problem if you dont have the cash to finance it. You may forego certain contracts or you may forego certain investments that you just cannot afford anymore, Pidun says.

4 Forget your instinctsInflation creates an economic situation that is so different from the ordinary that it can be difficult even for professionals to come to terms with its full implications.

The most common mistake is to think in nominal values. For example, some researchers have theorised that although

stocks are supposed to be a good hedge against inflation,

they actually did not perform well because analysts made a mistake in

how they evaluated cashflows, according to Hersh Shefrin, professor of finance at Santa Clara Universitys Leavey School of Business.

They didnt adjust future cashflows appropriately for inflation but they did adjust the discount rates for inflation, Shefrin says. In a highly inflationary environment, what that does is it penalises future cashflows very heavily.

Management experience may also introduce biases into your understanding. People ignore historical evidence from either before they were born or before they were paying attention, Shefrin says. People who were around during the 1970s will tend to forecast higher rates of inflation than people who came of age in the 1990s.

This kind of systematic bias even holds true for professionals. All through the 1980s and 1990s, when inflation began to decline, economists kept missing the fact that inflation was slowing down. Throughout the 80s and early 90s you could almost predict the size of the error in the announcement of the [Consumer Price Index] based on the inflationary forecasts done by professionals because they were

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consistently off by about the same bias, Shefrin says.

Its not that people dont learn, its just that they dont learn quickly, says Shefrin. They learn slowly and sometimes painfully.

5 Set your pricing strategyMost of all, you will need to reconsider your pricing strategy. The most defensive strategy of course and the one most often recommended is to try to keep pace with inflation, but this is not the only option. In Europe and the US, some packaged food companies have maintained prices but reduced the amount of food in the package.

Other, more inventive solutions may also be possible. There may be an opportunity for a new business model that can give the buyer a greater perception of control, such as the Bristol-Siddeley aircraft engine power-by-the-hour model, a 1965 innovation by the British engine company that leased running time rather than equipment itself, making it easier for the leasing company to forecast prices.

Inflation can even be an opportunity for a producer with a lower-cost structure, who may want to hold on tight and force the higher-priced competitors out of the market. But even if your company is not in a position to do this, it is something to be wary of, given the propensity of Chinese companies to wage high-stakes price wars when they see an opening.

Conclusion stay alertIn the East, there is little room for error. Restructuring tends to be difficult to arrange outside the major cities, Brown says, and little financing is available to do this. Theres a reasonable amount of capital sloshing around, in terms of venture capital and private equity firms, but theres a limited amount of capital around for restructuring or transformations, he says.

Of course, economic forecasts are far from exact; as one old joke puts it, economists have predicted nine out of the last five recessions. Yet the difficulties with sovereign debt and government revenue shortfalls all over the world suggest that the odds are good that theres inflation in your future.

However, if inflation does stop suddenly, it always ends in a recession, according to Pidun. At that

point, the tactics need to change again. While free cash is still going to be welcome, companies typically need to hit the brakes.

Just as the beginning of an inflation is very favourable for consumption, the end of an inflation is very dangerous for it, Pidun says. Instead, think about reducing capacity, preserving cash and identifying distressed competitors you may be able to take over.

Bennett Voyles, journalist

Private equity firms are now spotting opportunities in the tighter credit conditions, says Henry Ong, a mergers and acquisitions (M&A) lawyer for Weil Gotshal & Manges in Hong Kong. With the slowdown in the initial public offerings (IPO) market, many young companies are feeling the pinch as impatient investors look to cash out creating an opening for private equity.

Accountancy firms may be even luckier, with any change in the business climate a potential opportunity. Russell Brown, managing partner of LehmanBrown, plans to open three new offices in western China over the next three years, as more coastal firms move inland in search of lower wages. He is also looking to expand the firms expertise in turnaround management.

As for wage inflation, bad news for the profit and loss account is good news for the personal balance sheet, particularly for executives. A survey by global executive search firm Russell Reynolds Associates found that compensation for executives in India and China continues to rise more than 12% a year. The study also suggested that this may be a good time to move to developed world multinational corporations (MNCs); with the differential between expat and local packages eroding, MNCs may be more likely to up their bid.

*WHEN THE MUSIC STOPS

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Comment

It has finally happened. Malaysias new accounting framework, the Malaysian Financial Reporting Standards (MFRS), comes into effect this month, marking the convergence with the International Financial Reporting Standards (IFRS).

The MFRS framework comprises standards issued by the International Accounting Standards Board (IASB) that became effective on 1 January. The Malaysian Accounting Standards Board (MASB) has described the framework as a significant milestone for the capital market as entities will be able to assert that their financial statements are in full compliance with IFRS.

This is a landmark achievement after a long haul and countless endeavours, said Datuk Ali Abdul Kadir, chairman of the Financial Reporting Foundation, the MASBs oversight body. Now comes the time when we must equip ourselves with adequate IFRS knowledge so as to position ourselves in the global market environment.

But wait. The MFRS framework does not apply to everybody. The exceptions are entities that are within the scope of MFRS 141, Agriculture (MFRS 141) and IC Interpretation 15, Agreements for Construction of Real Estate (IC 15). They have another year to adopt the new framework.

This was how MASB chairman Mohammad Faiz Azmi explained it: While the board is seeking full

One size does not fi t all[The Malaysian Financial Reporting Standards are now in operation mostly. But the fact that some sectors are not yet required to follow them illustrates the importance of listening and adapting, says Errol Oh

convergence, we need to be mindful of potential changes on the horizon that may change current accounting treatments. These include, he said, the IASBs plans to issue a new standard on revenue recognition that will subsume IC 15 and the likely amendment of IAS 41, Agriculture (the equivalent of MFRS 141) requirements for bearer biological assets (BBA). The board had decided to allow the status quo until the IASB direction is clearer.

Property developers and oil palm growers in Malaysia should

be glad that it is not yet mandatory for them to comply with the new

framework. After all, the two industries have been the most vocal about the impact of the new standards.

For example, developers have expressed concern over the implementation of IC 15, arguing that the primary business model of the Asia real estate industry is different from the build-then-sell one widely practised in the West. On the other hand, the plantation industry takes the view that the IAS 41 treatment for BBA should be distinguished from that of consumable biological assets.

The fact that the IASB is expected to make adjustments is a good sign. One of the chief worries about the

move towards global standards is that a one-size-fits-all framework will disadvantage small, emerging economies whose business arrangements and environments can differ vastly from those of the developed world.

There has to be some degree of consistency and

uniformity if the world is to accept a single

set of financial reporting standards. Yet it would be foolish to pretend that global convergence will have the same effect across the world.

The strength of global accounting standards does not

just rest on their completeness and soundness; it is also dependent on the

stakeholders conviction that they have a say in the crafting of the standards.

Errol Oh is executive editor of The Star

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AP_COM_Errol.indd 23 02/12/2011 12:12

The fact that diversity is now a boardroom agenda item highlights how far the issue has come. Diversity of gender

and race has often been driven by legislation, but many business leaders have come to realise that, as the pace of globalisation speeds up, there is a strong business argument for a varied workforce.

The composition of the workforce has evolved to reflect changes in society. Consumer and client buying habits have developed in parallel, so it stands to reason that employers should recruit staff who mirror society.

Nowadays, diversity in the workplace goes well beyond gender and ethnicity. Diversity today must ensure no bias towards gender identity, sexual orientation and race, to physical or mental disability, religious beliefs, age and cultural experience and behaviour. Employers are now taking diversity a step further by focusing on inclusion.

Many large corporates are keen to embrace this, and to be seen to be doing so. HSBC, for example, has a long-standing worldwide advertising campaign, which shows a variety of images such as a tattooed face, the Leaning Tower of Pisa and a briefcase full of money, among other images, posing questions like, Right or wrong?, Good or bad? with the strapline, The worlds local bank.

When the campaign was launched in 2002, HSBC said: Underpinning the advertising is HSBCs philosophy that the world is a rich and diverse place in which cultures and people should be treated with respect. The point of the campaign is to recognise that different cultures and peoples see things in completely different ways. Its poignant, clever and forward thinking.

For the accountancy profession there is a further incentive to embrace diversity and inclusion. What employers need from todays accountants and finance professionals is sufficiently different enough to require a new kind of accountant. The skills and experience required of todays accountants have moved on and whereas a decade ago the profession, business and the boardroom were dominated by middle-aged men, todays business world is different.

Differing discussionEwan Willars, director of policy at ACCA, says: The discussion has moved on in the last five to 10 years. Previously it was about gender and ethnicity, but now its in terms of widening the role

of accountants in business. The role of the finance function in business has changed and employers are noticing that they need a wider set of skills to respond to the marketplace and address an underlying need about the way the business works.

While in the past differences in the workplace were seen as a source of friction, says Willars, now employers want to capture the heat of that friction and channel it to elicit fresh and different ways of thinking.

The 2007 credit crunch and ensuing global recession highlighted the need for people with different experiences, views and behaviours to sit in boardrooms and on non-executive

committees, to avoid groupthink and challenge decisions.

The internal audit function has also laboured in the past under groupthink, says Willars. They all went to the same university, trained in the same way and there was little friendly confrontation or questions over the way they did things. That has since changed and now they identify people with a range of backgrounds and experience, he says.

Since the crisis, companies have recognised the need to inject diversity into their businesses on every level, and a growing body of evidence shows that a more diverse workplace leads to better business performance.

We need people who can spot market changes so we need a mix of people. The challenge is that as

humans we like to work with people who are like us and think like us, so the shift has moved towards diversity of thinking, explains Sarah Churchman, head of diversity at PwC.

The Big Four firms recognised years ago that, as global organisations competing to sell their products and services, they must have workforces that reflect their clients views, experiences and needs.

One of the key drivers for the Big Four firms initially was attracting and retaining staff, but their philosophy on diversity has clearly moved on to encompass thinking and behaviours, not just a physically diverse workforce, but one with myriad experiences.

THE NEW DIVERSITYEmployers have long been forced to provide equal opportunities, but many now see diversity as an increasingly important component of business success

ITS ABOUT MOVING PEOPLE AWAY FROM THINKING THIS IS A MINORITY ISSUE. ITS NOT FOR MINORITIES. IT IS ABOUT THE SUCCESS OF BUSINESS IN THE 21ST CENTURY

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AP_F_diversity.indd 24 02/12/2011 12:13

Diversity today no longer means just differences in race or gender. It encompasses the whole human experience. Multiple dimensions such as generation, culture, personality, skills, training, educational background and life experiences need to be considered.

To thrive and innovate in todays global economy with its various challenges, companies require flexibility, creativity and imagination qualities that can be nurtured only by a diversity of viewpoints, experience, skills, cultures and education.

If an organisation does not leverage the potent weapon of diversity, it risks limiting its creative potential, and ultimately, losing its competitive edge.

Furthermore, as companies become more global and expand into new markets, they demand a more global mindset and greater diversity from their partners, clients and customers too.

Differing voices and viewpoints are powerful factors in steering innovation. They generate lively debate, healthy conflict, fresh ideas and potentially, new products and services that result in visible benefits to the bottom line.

Open to changeBy receiving and implementing innovative ideas from a variety of individuals with different backgrounds, skills and experiences, leaders can drive steady growth and profitability for their organisations.

An organisations performance can improve as a result of diversity. Diverse viewpoints lead to broader perspectives on business issues, better ideas, better teams and better decisions.

Inclusiveness is all about making the diverse mix work. Diverse teams stimulate innovation and new ways of problem-solving. But they need an inclusive culture to help them function at their best.

In todays globalised world, the people we work with and for come from a diverse range of backgrounds and cultures.

At Ernst & Young, we actively recruit and develop a workforce that mirrors the world we live in and has the skills and mindset to work effectively across

any borders. We encourage our people to move around the organisation, both geographically and functionally, to help foster the global mindset needed to work in crossborder and crosscultural teams. We send them on international assignments, allow them to experience a wide variety of roles and to develop new skills and competencies through exposure to different cultures, industries, individuals and ways of thinking. We also have formal training and learning programmes in place to support them.

Soo Fern Lee, partner and ASEAN people leader at Ernst & Young Advisory Services, Malaysia, kicks off our round-up of how fi nancial professionals from around the world view the various aspects of diversity

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AP_F_diversity.indd 25 02/12/2011 12:13

Last spring PwC rolled out its Open Mind e-learning training to all staff and partners. Until you are aware, you cant change. Its cultural change, Churchman adds.

Sarah Bond, head of diversity and inclusion at KPMG, agrees. Its a broader understanding that its about value and differences. Theres an understanding that creating an inclusive environment isnt about limiting it to just gender and race. People think diversity is only about minorities but we are keen to see it as about our culture.

Practical issuesBut challenges remain. Its all very well having a diverse workforce, but if it isnt managed well then the outcome can be a workforce that is split into silos of different types of people, because management hasnt overseen a simultaneous policy of inclusion.

Keeping it on the boardroom agenda is also tough, especially in economically challenging times. Diversity and inclusion, in difficult economic circumstances, slip off the priority list. Its a continual challenge. Its not about single interventions; its about changing the culture. Its easy to think of diversity and inclusion as setting up networks or running events which arent to be underestimated but if you are really talking about change then you need to do something big, says Bond.

KPMG is also running a programme of training about raising awareness of unconscious bias. Its about moving people away from thinking this is a minority issue. Its not for minorities. It is about the success of business in the 21st century, Bond adds.

Embracing diversity delivers better results and ensures companies are fit for the marketplace, now and in the future. But management shouldnt just hire a varied workforce for the sake of it. Companies, if they havent already begun to think about it, must now start to assess their workforce and their business needs for the benefit of business and the workforce alike.

Michelle Perry, journalist

Jim Yang ACCAGeneral manager, financial department, China LifeThe evolution of China Lifes finance function has resulted from the swift development and increasing competition in the insurance market in China. As we work on the transformation of our business operation system to maintain our competitive edge, our finance function has to provide the relevant information for decision-making and we need the right people in the right place. Different functions have different requirements for financial talents. A diverse workforce in the finance function helps you pick the right person for the right job.

Wairimu NjagePeople and change manager, PwC KenyaWhen we consider diversity, we look at the full range of human and organisational differences and similarities. The real payoff comes through creating an environment of inclusion, and the process of leveraging each unique individual to strive toward a common goal. Diversity management is an important part of talent management and there is a demonstrated clear link between investing in diversity and inclusion and corporate performance. Investments in diversity tend to result in greater agility, better market insight, stronger customer and community loyalty, innovation, and improved employee recruitment and retention.

Imran Husain CFO, Unilever PakistanThe finance function has proved to be a great example where diversity has really benefited the organisation as a whole; from gender balance to hiring talent from various backgrounds and industries. The finance function ensures, working with human resources, that it makes itself attractive for people of diverse backgrounds and qualifications outside and within the organisation and provides the training that is required. We recognise that diverse teams play an important role in enhancing our companys brand perception and competitive edge.

Hung To ViFinance and control manager, BP Exploration VietnamBP has systematically developed strong local talent pools, including in the finance function. These local talents will best serve BPs interests in emerging countries, where there are complex local issues, different practices and cultural variances. However, local talents need to be developed to understand BPs culture and requirements. This has been carried out by the movement of staff, not only from head office to the regions to set up new operations, but also back from the regions to head office.

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AP_F_diversity.indd 26 02/12/2011 12:13

Comment

I asked to interview Lou Pagnutti, Ernst & Youngs Asia Pacific area managing partner, because I thought enough time had passed for an assessment to be made of the Big Four firms regional network restructuring. National practices in 20 Asian economies were grouped together under Pagnuttis purview in July 2010, replacing the traditional model of member firms operating essentially as autonomous fiefdoms.

We have had a tremendous start, said Pagnutti, formerly managing partner of EY Canada. For the fiscal year that ended in June, we are up approximately 18% across Asia Pacific in US dollar terms. Equally important, he said, the area structure is ensuring that we get the right resources to the client at the right time.

However, to my mind, the most interesting aspect of the experiment EY has also integrated national practices in the Americas and EMEIA (Europe, Middle East, India and Africa), but kept Japan as its own region is the potential to strengthen governance.

I have written about controversies that dogged accountancy firms, including EYs Hong Kong member firms work on electronics maker Akai and its US practices audit of Lehman Brothers. More recently, its Japanese member firm has defended its role as auditors to troubled Olympus, the camera and medical equipment company, noting that it did not feel the need to resign as the groups auditor. EY only took over as auditor from KPMG in 2009.

One common thread in these

Greater governance reduces risk[By integrating national practices in 20 Asian economies, Ernst & Young has created a second layer of oversight that may reduce the chances of auditors behaving improperly, says Cesar Bacani

scandals is: how did the auditors fail to spot the blindingly obvious?

My theory is that having an area or regional superstructure provides a second layer of oversight to counterbalance the pressures or blandishments that auditors may be subjected to. EY has agreed to pay an undisclosed amount in the Akai case after a local partner was accused of faking

documents, allegedly at the behest of Akai executives.

It certainly gives us the opportunity to have broader consultations in terms of what we should or should not be doing and how we can effectively mitigate risk and make the right decisions, Pagnutti said.

At the end of the day, you have to make decisions locally, but there are certain things that were doing, such as making sure that all the countries in Asia Pacific operate in accordance with the area policies and methodologies.

You can have better flows of information, he added. And

absolutely we have quality and risk management processes that happen at the area level.

That means we are developing stronger practices

across member firms.What about billing, cost-sharing

and individual prerogatives? We know how to share fees, said Pagnutti. Sometimes there are challenges we have to overcome, but by working together more, you build both policies and procedures as well as trust.

EY managed to avoid the exodus of talent that hit Grant Thornton last year when it adopted a similar one-firm approach in China and Hong Kong. That initial challenge surmounted, the firm is on the way to rendering seamless, consistent, quality service on a global basis, said Pagnutti.

If, in so doing, EY also averts audit missteps such as the Akai case, the

area integration approach would be that much more invaluable to the profession.

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

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AP_COM_Cesar.indd 27 02/12/2011 12:12

INTERNAL AUDITORS OF THE FUTURE HAVE THEIRWORK CUT OUT FOR THEM. THEY WILL BE EXPECTEDTO SHOW INTEGRITY AND INDEPENDENCE

Accountancy isnt just a profession; its a vocation. Done right, nobody knows it exists. Done wrong, nobody

lets you forget. And unfortunately, the profession has been in the spotlight for the wrong reasons rather a lot in the past decade, beginning with Enron in 2001. There are, however, some valuable lessons to be learned. Considering how fraud was perpetrated in these cases, one segment of accountancy, internal auditing, looks set for an infinitely more expanded, if not completely new, role within the corporate set-up.

For a very long time, the accountants position was inviolate. No one thought to question, much less challenge, the decisions that were made by finance at the highest level. But then came a slew of financial scandals that rocked the corporate world and pointed to fraud with the collusion of top management and suddenly anyone who ever crunched numbers came to be viewed with the same kind of distrust traditionally reserved for politicians.

Realising the long-term implications of this one of the major ones being loss of confidence in the profession efforts were put in motion by the accountancy profession itself to remedy the situation. The implementation of the Sarbanes-Oxley Act in 2002 tightened many controls, primarily internal ones, and emphasised detailed documentation. Unarguably, the tedium of auditing was increased by the acts requirements, but stripping every

transaction down to bare bones was deemed necessary if transparency was to be put back into corporate dealings. With the acts implementation, internal audit started to move from being a back-room function to a boardroom one. Internal auditors found themselves more frequently called on to explain the vagaries of operations at board level, so that risks could be more efficiently identified and managed, while decisions could benefit from better-defined

information. The overhaul of the internal auditors role had begun.

The question is whether this relatively new role can be sustained, and much hinges on the quality of current and future internal auditors. Most large companies have auditing departments, which is where fresh accounting graduates start. Auditing is an integral part of their training, but most of them move on after their required three-year stint.

However, the career path for those who choose internal audit is beginning to look very different from the traditional, number-crunching and compliance role.

Internal auditors of the future will need the right skillsets. It wont be enough to know what goes where; it will be necessary to know what the implications of each and every

transaction are, how they will impact on the business in the short and long terms, and how difficulties can be mitigated before they have a chance to turn into major problems.

Looming challengesWhile an external auditor provides assurance to the board and by extension, stakeholders, of the integrity of financial statements, the internal auditor provides independent

assurance to the board. Viewed from this perspective, even external auditing has to depend on the integrity of internal auditing, especially on financial control reviews. Auditors are now an inalienable part of the good governance process, and will need to provide comfort to the board regarding the integrity of financial statements of the corporation. Compliance requirements are already stringent, and they will not get easier anytime soon.

Because compliance is such a big part of auditing, it is not unreasonable to expect internal auditors to understand how every department is run, and to be able to plan (or at least suggest) improvements in efficiency in the long term. This level of understanding, and the ability to advise accordingly, will not develop overnight but those who have already gone

BACK ROOM TO BOARDROOMThe Sarbanes-Oxley Act helped move internal auditing into the spotlight; but how can auditors ensure they have the right skills to keep on top? asks Wee Hock Kee FCCA

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through the auditing mill will find themselves at an advantage.

The role of compliance in the organisational governance agenda is gaining importance, particularly where the laws of different countries are concerned. Companies have to respect the regulations of the respective countries where they operate; the onus will therefore be on internal auditors to ensure that these are adhered to, as compliance is mainly a board governance agenda.

Every aspect of operations will have to be scrutinised in order for internal auditors to form an opinion on their effectiveness, and this has to be done in a consolidated manner which can be integrated, without duplication, into the assurance matrix for risk and control management.

Career developmentJuxtaposed with the requirements of traditional auditing, this seems a tall and rather daunting order but the more complex the operation, the more opportunity it holds. Because

of the nature of this expanding role, several other skillsets will be required versatility, flexibility and rapid analysis, among others. This also opens the internal audit field to those accountants who have acquired expertise outside auditing.

Simultaneously, corporations will need to start mapping out their own internal auditing strategies, which must include ensuring adequately skilled personnel who will be able to maintain continuity. One approach may be to allow them to move to other line functions with the intention of returning to internal audit as more senior auditors in the near future.

Internal audit may be seen by some as a low-profile function, but it has wide-ranging implications. At present, there is a general lack of interest in the area because it may not be deemed sexy enough. However, trends indicate that all countries and economies are concertedly moving towards more stringent compliance, better corporate governance and higher ethical standards. Stakeholders are growing

more vociferous, and the general public has already signalled its distaste and intolerance for fraud and what it perceives as bad corporate behaviour.

Strong-minded and fearlessInternal auditors have their work cut out for them. They will be expected to show high levels of integrity and independence, in addition to being multitasking, strong-minded and fearless enough to blow the whistle when white-collar crime rears its head. Soft controls, such as tone at the top, morale, ethical climate, trust, integrity, corporate cultures, are unlike clearly defined, hard controls. Internal auditors are expected to perform this under board governance review. Obtaining reliable information about soft controls is one of the most daunting challenges internal auditors must confront.

The staid world of internal audit has some exciting things in store.

Wee Hock Kee is the former Malaysia president of the Institute of Internal Auditors

Wee Hock Kee is CEO of BackToHealth and MD of CG Board Asia Pacific in Malaysia. Despite his current entrepreneurial roles, he retains a passion for auditing. Wee was fast-tracked, via an accounting technicians course, to ACCA, and carried out his studies partly in Singapore, and partly in the UK. Auditing positions at Fraser and Neave, ICI, Cycle & Carriage Group, Guinness and AstraZeneca followed. He was also president of the Institute of Internal Auditors (IIA) Malaysia from 200406, president of the IIA Asian Confederation (200607), a board member of IIA Global (200507) and was the organising chairman of the 2011 IIA International Conference.

*ONE-MINUTE CV

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While e-learning is no longer a novelty, the unrelenting pace of IT progress means that

modern online training is expected to become ever more exciting, challenging and rewarding.

Technology is now an integral part of our work and personal lives. Only 20 years ago, schoolchildren would be hunched over library books researching the secrets of the pyramids or how the atom came to be split. Now, the stock answer to any request for information from an overworked parent is surely: Lets Google it when we get home.

And its not just children who can benefit from the educational properties of the digital world. Professionals both digital natives and those old enough to remember life before email have also come to take it for granted.

ACCA recently commissioned a report exploring the world of the e-professional and how online learning affects development, the impact of technology on finance professionals and their clients, and what the future of online learning may look like.

Digital advances are something that everyone with an interest in educating the finance professionals of the future are embracing, including ACCA. Clare Minchington, ACCA executive director learning and products, says: In June 2011, we announced that ACCA would be working towards delivering all its examinations online through an innovative and forward-facing programme of e-assessment. This will lead to a new generation of professional examinations that maintain the rigour and quality

associated with the ACCA brand and appeal to the coming generation of e-professionals, employing technologies they will increasingly be using in their social lives.

Attitude shiftThere are two key reasons for a change in attitude towards e-learning. The first is the growing sophistication of the options, with everything from Skype to iPhone apps to webinars; the second is the flexibility that e-learning offers both to learners and trainers. Learning programmes now often fit around work, rather than work being accommodated around study leave.

Any suspicions that professional standards are being compromised by insufficiently robust online learning and assessment programmes are quickly challenged by those on the front line. Martin Taylor, CEO of BPP

Business School, argues that online learning is actually more demanding than traditional forms. E-learning can be incredibly demanding, because learners are doing a lot of the learning and the research themselves, which is incredibly beneficial to deep understanding, he points out.

These issues are increasingly important in the aftermath of the global economic crisis, when employers are forced to prioritise efficiency, with customers typically wanting more for less.

Laura Overton, managing director at Towards Maturity, an organisation that works with employers to implement and benchmark e-learning capability, says: This raises questions not only about how employees learn on the job in a formal programme, but what informal learning opportunities employees have access to.

Blended is bestGreg Owens, director of technical training and student qualification at BDO, says: There has to be a way professionals can get that initial knowledge and then apply it to a real client experience. Its how you make it all real thats the hardest bit.

This is where blended learning the combination of e-learning with on-the-job and classroom training comes into play. The blended approach reflects the 70/20/10 theory of learning: 70% of learning happens informally and is available on demand, 20% comes from social learning such as networking and coaching, and 10% from courses a