News Institute news Accounting news

Institute news

Best Corporate Governance Awardsresults reflect a mixed yearThe results of the newly renamed Best Corporate Governance Awards 2016, announced last month, featured more first-time winners, as well as some disappointment, reflecting a mixed year in terms of companies’ efforts in good corporate governance.

The judges decided that only one diamond award, the highest honour, and three platinum awards should be given out this year. The solitary diamond award winner was consistent winner CLP Holdings.

At the same time, this year’s awards picked out new awardees including Bank of China in the H-share compa-nies and other Mainland enterprises category, and Hospital Authority, as the first recipient of the new award for website corporate governance informa-tion. The judges were particularly

pleased to identify a public-sector orga-nization as a winner of the new award and were impressed by the way the Hospital Authority reaches out to its public stakeholders through its multi-lingual website, and by its commitment to accountability as demonstrated, for example, through the posting of its board meeting minutes online. Lenovo Group and Airport Authority are two new faces being given recognition in the awards for sustainability and social responsibility reporting.

Besides website corporate gov-ernance information, the Institute introduced two other types of awards this year – internal control and risk management, and board and audit committee operation and function-ing. However, the judges expressed disappointment that they were not

able to find suitable candidates for both of these.

The new awards aimed to identify companies and organizations that are making good efforts in these impor-tant areas of good governance, but which may not yet have achieved the overall standard necessary to win an award in the main categories.

“Despite some disappointing results, there are a number of positive signs. The judges are pleased to see that overall there were more shortlisted companies this year, and some categories, such as H-share and other Mainland enterprises category and the sustainability and social responsibility reporting awards, were very competitive. Whistle-blowing policies are more widely seen and some progress is being made

Winners of this year’s BCG Awards together with guest of honour Secretary for Financial Services and the Treasury K.C. Chan (sixth from left, front row) and Institute President Ivy Cheung (fourth from left, front row) at the presentation luncheon on 1 December.

4 December 2016

aplus

Resolution by AgreementWai Siu Hung, Bennett, CPA (practising), Tong Ka Yan, Augustine, CPA (practising) and Ernst & Young (firm)

Complaint: Failure or neglect to observe, maintain or otherwise apply the Fundamental Principle of Professional Competence and Due Care in sections 100.5 and 130 of the Code of Ethics for Professional Accountants.

In April 2015, Ernst & Young issued an unmodified audit report on the financial statements of a Hong Kong-listed company and its subsidiaries for the year ended 31 December 2014. The financial statements were prepared in accordance with International Financial Reporting Standards. Wai was the engagement partner and Tong was the engagement quality control reviewer.

The audited financial statements recorded the group’s disposal of a subsidiary group during the year. A premium arising from the previous acquisition of a non-controlling interest in the subsidiary group was incorrectly transferred to profit and loss on the disposal of the group, contrary to IFRS 10. As a result, the gain on discontinued operations was materially understated. In May 2015, the group issued amended financial statements for the year ended 31 December 2014 in which the misstatement was adjusted. Ernst & Young issued an unmodified audit report on the amended financial statements. In June 2015, the company issued a clarification announcement about the misstatement.

Regulatory action: In lieu of further proceedings, the Council concluded that the following should resolve the complaint:1. Wai, Tong and Ernst & Young acknowledge the facts of

the case and their non-compliance with the relevant professional standards;

2. Each of Wai and Ernst & Young pay an administrative penalty of HK$30,000, and Tong pay an administrative penalty of HK$15,000; and

3. All three respondents be reprimanded and jointly pay costs of HK$10,000.

Lam Yiu Hoi, Peter, CPA (practising), and Peter Y.H. Lam & Co. (firm)

Complaint:  Failure or neglect to observe, maintain or otherwise apply Hong Kong Standard on Auditing 500 Audit Evidence, HKSA 230 Audit Documentation and the Fundamental Principle of Professional Competence and Due Care in the Code of Ethics for Professional Accountants.

Lam is the sole proprietor of Peter Y.H. Lam & Co. The firm issued an audit report on the original version and a subsequently amended version of the financial statements of a private company for the year ended 30 June 2014. The firm conducted the audit in accordance with Hong Kong Standards on Auditing and expressed a disclaimer of opinion on both sets of financial statements as a result of a limitation of audit scope. After enquiring into a complaint about deficiencies in the audit, the Institute found that Lam and the firm failed to perform sufficient appropriate audit procedures on prior period accounting errors as well as certain balances with related companies and a shareholder that were included in the financial statements. These items were material and not affected by the limitation of audit scope. Accordingly, the auditor is required to conduct audit procedures on them in accordance with auditing standards.

Regulatory action:  In lieu of further proceedings, the Council concluded that the following should resolve the complaint:1. Lam and the firm acknowledge the facts of the

case and their non-compliance with the relevant professional standards;

2. They be reprimanded; and3. They jointly pay an administrative penalty of

HK$35,000 and costs of HK$10,000.

Information on the Institute’s complaint handling process and guidelines for the resolution are available at the Institute’s website under the “Compliance” section at: www.hkicpa.org.hk.

on introducing diversity policies and objectives,” says Ivy Cheung, President of the Institute and chair of the judging panel.

“The awards organizing committee conducted a review and there are several new features in the awards this year,” says Patrick Rozario, the BCG Awards’ organizing committee chair. “We dropped the word ‘disclosure’ from the title to emphasize that disclosure is only one element of good corporate governance. We introduced new awards and also reviewed the marking

scheme taking into account the latest developments in environmental, social and governance reporting.”

This year, more than 650 annual reports were reviewed, and the judges also considered publicly-known information for further insights into candidates’ corporate conduct and actual governance practices.

Mentorship Programme2017-18The Institute’s 2017-18 Mentorship Programme is now open for appli-cation. The initiative aims to offer

aspiring CPAs the opportunity to learn from experienced members for the purpose of their career development through consultation and experience sharing. Members are welcome to join as mentees or mentors through online registration by 31 December. Visit the dedicated webpage on the Institute’s website for more details.

ObituariesThe Institute notes with regret the passing away of Lam Wan-kong, Benjamin, Lau Koon-kwan, Doris, Lau Wai-kin, and Soo Hung-sham.

December 2016 5

NewsAccounting

6 December 2016

The marijuana business is in need of accounting services as the drug becomes legal in several states across the United States at a rapid pace, reported Accounting Today this month.

Accountants looking to get into what is expected to be a booming market should understand that the legalization of weed does not mean it becomes easy to buy and sell, according to the report. “Each state in which marijuana is legal, either for medical use, recreational use, or variations therein, has its own laws surrounding the trade. Also, businesses have been moving, buying and selling marijuana on the black market for

decades. Moving a company from illegal to legitimate car-ries with it a complicated tax burden that straddles state and federal rules.”

Section 280E of the U.S. tax code forbids businesses from recording tax deductions or credits for income associated with illegal substances. How the code relates to marijuana is complex, the report adds. “An accountant taking on mari-juana-related businesses needs to have a good understanding of section 280E, possibly working in tandem with a lawyer serving the business, too.”

Cannabis businesses need accountants

Illus

trat

ion

by H

arry

Har

rison

EY Switzerland to accept bitcoin next yearThe Swiss branch of EY will start accepting bitcoin for invoice payments in January, the firm announced last month. The firm will also launch a new bitcoin ATM at its office in Zurich, as well as a dedicated wallet option for EY employees. The launch comes amid an ongoing cultural bitcoin experiment, which involves a government-backed programme, announced in May, that lets citizens pay for government services of up to 200 Swiss francs with bitcoin. In October, Swiss railway service SBB announced that it would sell bitcoin through its network of ticket kiosks.

Shenzhen-Hong Kong link opensHong Kong Exchanges and Clearing unveiled the city’s second stock-trading connect with the Mainland on 5 December. Shenzhen’s exchange link will give foreign investors direct access to more than 800 stocks in China’s southern financial hub, while Chinese investors can for the first time buy more than 100 smaller companies listed in Hong Kong. The trading link should boost China’s case for inclusion in MSCI’s global indexes, Charles Li, the HKEX’s Chief Execu-tive Officer told Bloomberg. The index compiler has declined to include A-shares three times since 2014, pointing to offshore investors’ heavily restricted access to the market.

aplus

Cybersecurity budgets shrinkfor Chinese companiesTotal cybersecurity budgets for Chinese companies in 2016 dropped 7.6 percent from the previous year to a combined US$7.3 million, reported the South China Morning Post last month, citing a survey by PwC. This is despite such companies seeing an increase in cyberse-curity incidents, driven by China and Hong Kong’s rapid adoption of connected devices. In 2014, only 241 secu-rity incidents were reported, compared with 2,577 so far this year, equal to a 969 percent increase, according to PwC’s Global State of Information Security Survey.

Charles Li

Apple fights back against EU tax rulingApple filed an appeal this month against a European Union ruling that ordered the company to pay up to €13 billion in back taxes in Ireland. Dublin will also appeal the EU’s order, the Irish government said in its formal legal submission, accusing EU competition authorities of unfairness and seeking to breach Ireland’s sover-eignty in national tax affairs. In August, the European Commissioner for Competition Margrethe Vestager called on Apple to pay the penalty for gross underpay-ment of tax on profits across the European bloc from 2003 to 2014. Apple issued a statement, pointing out that it was the largest taxpayer in the world, in the United States and in Ireland.

December 2016 7

The percentage of accounting graduates who fear their jobs

will be taken by machines over the next two decades, with

bookkeeping being the area most at risk, according to a survey

conducted by WikiJob.

75%

The percentage of internal auditors worldwide who have

been requested to change or hide an important audit finding at least once, according to a report by the Institute of Internal Auditors. Of the 14,500 practitioners across

166 countries surveyed, 33 percent claimed that refusing to comply with the requests would result in a negative consequence.

23%

A world of numbers

The amount withdrawn from Hong Kong equity funds since the start of the year due to macroeconomic shocks in Europe from Brexit, the

presidential election of Donald Trump in the United States, and

China’s unexpected currency devaluation, according to data

from the Hong Kong Investment Funds Association.

HK $7.5billion

aplus

Cristiano Ronaldo

NewsAccounting

Former Kraft finance chief to be Gap’s CFOFollowing the announced departure of Sabrina Simmons, Gap’s Chief Financial Officer for a decade, the San Francisco-based clothing chain appointed Teri List-Stoll, the former CFO of Dick’s Sporting Goods and Kraft Foods as its new finance head starting from 17 January. List-Stoll’s appointment comes as president-elect Donald Trump’s transition team plans to dismantle the Dodd-Frank reforms, which aim to decrease various risks in the United State’s financial systems. According to List-Stoll, companies that have invested in complying with the regulations, and are satisfied with the results, will likely keep some measures, regardless if the full act is repealed.

KPMG, Microsoft boost digital transformationTo promote the digital transformation of large- and mid-market firms in India, KPMG and Microsoft India announced a strategic Internet of Things advisory partnership. The advisory will provide digital solutions such as cloud-based automation, create operational insights, provide better analytical tracking and management of cus-tomer relations, and augment organizational agility and workforce mobility. “The IoT Advisory will help define IoT usage scenarios for customers and then implement them,” says Peter Gartenberg, Gen-eral Manager of Enterprise and Partner Group, Microsoft India.

Indonesia tax net widens to target tech giantsIndonesia’s Finance Minister Sri Mulyani Indrawati is seeking to ramp up the country’s tax revenues, which have been hampered by weak commodity prices and subdued demand from China, by widening its taxation net to include global technology companies like Google, Facebook and Apple. According to Lin Neumann, Managing Director of the American Chamber of Commerce in Indonesia, this strategy may deter foreign investors because of lengthy negotiations over tax assessments, undermining President Joko Widodo’s ambitious infrastructure goals.

Ronaldo and Mourinho tax allegationsCristiano Ronaldo, the Real Madrid star, and Jose Mourinho, Man-ager of Manchester United, have been avoiding paying taxes on mil-lions of U.S. dollars of earnings by moving large sums to the British Virgin Islands, according to claims from a document leak. Both have denied these allegations, and Gestifute, the football agency that represents them, said that they are “fully compliant with their tax obligations with the Spanish and British tax authorities.” The claims were published by the European Investigative Collaborations consortium. More than two terabytes of data with original contracts relating to Ronaldo, Mourinho and other top players were included in the leaks.

December 2016 9