The institute
Institute
in brief
www.hkicpa.org.hk
A day to play
On Sunday, 10 December 2006,
the Institute and Playright Children’s
Play Association will host PlayStreet 2006.
This year’s family day theme is “Play: The success ingredient (成功之道
遊戲街).”
The Chater Road pedestrian precinct in Central will be transformed into
a massive play area featuring more than 30 fun activities for children and
parents. The family day event will show how play helps develop children
and contributes to their life-long success through creativity, imagination and
physical activities.
Money raised from sponsors and donors is supporting PlayStreet 2006, and
the balance will go towards the Institute’s charitable fund and the Playright
Children’s Play Association in aid of its play development and other charitable
programmes in Hong Kong.
Rediscover why play is a “success ingredient” in a child’s life!
New leaders to
be elected at AGM
Seven Council members will be elected at the Institute’s annual general
meeting on 15 December 2006. Institute members should return their
completed ballot paper no later than 12 December 2006.
After the meeting, the newly elected Council will appoint a new president
in a special session.
Annual achievement
The Hong Kong Management
Association honoured the Institute at
last month’s 2006 best annual reports
awards. A nine-member panel of
adjudicators awarded the Institute
for its achievement in corporate
governance disclosure, in addition to
awarding it an honourable mention.
The panel reviewed 115 annual
reports and the criteria included
conformity with accounting standards,
the Hong Kong Stock Exchange rules,
Companies’ Ordinance, corporate
governance reporting standards, and
general presentation. The awards
have been running since 1973.
Dinner reminder
The Institute’s annual dinner
is on Thursday, 7 December, at
the Hong Kong Convention and
Exhibition Centre. HKSAR Chief
Executive Donald Tsang is the
guest of honour. Remember to
dress to the theme, “the colour
of success.”
Corporate kudos
Secretary for Financial Services
and the Treasury Frederick Ma
attended a luncheon for the
winners of the Institute’s 2006 Best Corporate
Governance Disclosure Awards on 28 November.
In remembrance
The Institute announces with deep regret the
passing away of Gary Li Chi Sing.
Primary purpose
Two hundred and twenty Diocesan Girls’
junior school pupils learned the importance of
financial management during an Institute May
Moon and the Secrets of the CPAs storytelling
session on 9 November. This was the first time
the Institute used the storybook in primary
schools and it is another component of the
“Rich Kid, Poor Kid” money management
education programme.
Football focus
The Institute’s football team beat the Shenzhen
CPAs one goal to nil in a recent friendly match at
the Shenzhen Stadium.
Come away with me
The water sports and hiking interest group are
organizing a sailing trip on 9 December. For more
information, call Yvonne Chew at 2287-7057.
December 2006
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Hong Kong news
news digest
hong kong
Hong Kong not taking handouts
Speaking at the fifth anniversary ceremony of the
founding of the Coalition of Professional Services
on 20 November, Executive Council convenor
Leung Chun-ying criticized a Beijing academic
for saying Hong Kong had been relying on the
mainland for economic handouts since the 1997
financial crisis, reported The Standard. “Local
professional services do not tap into mainland
markets without making contributions to the
mainland,” said Leung. He also stated that Hong
Kong had made profound contributions to the
mainland’s modernization.
HSBC keeps its stake
HSBC is expected to maintain its 19.9 percent
stake in Bank of Communications as China’s fifth
largest lender plans to issue 4.5 billion new shares
on the Shanghai Stock Exchange, reported the
Financial Times.
Quick lunch preferred
Government employees are asking for a shorter
lunch break to reduce the length of the working
day after the switch to a five-day week, reported
The Standard.
Pay rise for civil servants?
Civil servants might receive a pay rise next
year. When asked about the pay rise in the next
financial year, Secretary for the Civil Service
Denise Yue Chung-yee said, “I would not rule out
such a possibility.” The last increase was in 2001,
ranging from 2.38 to 4.99 percent, reported the
South China Morning Post.
Business groups want red tape lifted
Vacant factories are costing owners HK$7.5
billion a year according to a study initiated by
25 business associations and conducted by the
Polytechnic University. The factory buildings are
empty because of restrictions on usage, reported
the South China Morning Post. The procedures
to have the usage changed are long, complicated
and expensive. Many owners choose to just
leave it vacant rather than spend the money
and time to deal with the red tape, according
to the university’s Vice President Lui Sun-wing.
An estimated 1.27 million square metres of floor
space in old-style industrial buildings were vacant
last year. The 25 business associations want the
government to allow the vacant space to be used
for other purposes.
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December 2006
Hong Kong top dog in hedge
fund market
Hong Kong is the fastest-growing hedge
fund market in Asia – including Japan
– after attracting US$1.58 billion in capital
to start-up hedge funds last year, reported
The Standard. The Securities and Futures
Commission (SFC) announced that over
the past two years, assets under management increased by a
staggering 268 percent to US$33.5 billion.
The size of hedge fund activity prompted the SFC to do its first
survey of hedge funds managed by SFC licensed managers in June 2006.
Results showed that the number of respondents dealing with hedge funds
had doubled over a 12-month period, increasing to 118 as of March 2006.
The SFC’s website quoted Chief Executive Officer Martin Wheatley
saying, “The findings show that Hong Kong’s hedge fund market has grown
substantially and confirm Hong Kong’s position as a leading hedge fund
management centre in Asia.”
The growth is mainly due to the city’s skilled manpower, solid
infrastructure and simple tax regime, and investment opportunities in the
mainland, The Standard reported Wheatley as saying. The article went on
to say the level of leverage was well below the line of danger where it would
require tighter controls by regulators, and that the long and short leverage
– a common strategy adopted by hedge funds – could help reduce volatility
rather than hurt the market.
Gold at Hong Kong’s airport
A HK$20 million gold depository – the largest commercial one of its
kind in Asia – located at Hong Kong International Airport is in the final
planning stage.
The gold depository will provide storage for banks and financial
institutions previously storing their gold in Europe or the United States.
Alvin Ching Man-kit, former president of the Hong Kong Chinese Gold
& Silver Exchange Society, expects a company for the gold depository to
be set up this month and start accepting gold in 2007.
Greater China news
Anti-fraud measures
stepped up
PwC to splash out
on talent
China last month passed an anti-moneylaundering law that encompasses securities and
insurance companies, said Chen Xiaoyun,
director-general of the legal department of
the central bank, the People’s Bank of China.
Previous regulations applied only to the
banking industry, he explained, as cited
by Bloomberg.
Meanwhile the country is increasing
coordination across financial services industries to
combat bank fraud, Liu Mingkang, the head of the
China Banking Regulatory Commission (CBRC)
said at a conference on the subject in Beijing, also,
reported by the news agency.
“We are working very closely with the
nation’s securities and insurance regulators, and
we all see anti-fraud efforts as crucial for China
to establish a sound financial system,” he said.
Liu added that China sought cooperation
with overseas regulators too. China has signed
22 agreements with other nations’ banking
regulators to battle fraud, he said.
Chinese banks are working with overseas partners in trying to
improve internal controls ahead of tough foreign competition when the
nation fully deregulates its banking industry this month in accordance
with its commitments to the WTO.
Bank of China is working with partner Royal Bank of Scotland
Group to add technical and human resources expertise to fight fraud,
according to Xu Jianxin, general manager of the Chinese bank’s internal
audit department.
Fraud and other irregularities at China’s financial institutions
amounted to US$95.9 billion last year, up 31 percent from 2004,
according to the CBRC.
China is strengthening oversight of the banking industry while at the
same time the nation’s biggest state-owned banks are trying to improve
risk management and eradicate fraud following a series of scandals and
embezzlement cases.
In one of the worst cases, three former Bank of China managers
siphoned more than HK$6.4 billion in a case involving false identities,
gambling losses and money transfers to dummy companies, according to
the prosecution. The three went to trial in October.
There are “undoubtedly increasing challenges for Chinese banks
in combating fraud,” said Mervyn Davies, chief executive of Standard
Chartered Bank, cited by Bloomberg.
The world’s biggest accounting firm will
invest between US$50 million and US$100
million to its China talent pool, Samuel
A. DiPiazza Jr., chief executive officer of
PricewaterhouseCoopers, said last month,
Shanghai Daily reported. DiPiazza did not
specify a time schedule. The firm has invested
more than US$200 million in China so far.
“Our commitment to China as an
international company is strong,” he said.
“China is the most important market for us in
the next two decades.”
DiPiazza was speaking in Shanghai, where he
will serve as deputy chairman next year for the 18th
International Business Leaders Advisory Council to
the city’s mayor. PwC already has more than 2,000
staff in Shanghai and says it will add another 500
to that office next year. Over all, DiPiazza said, his
firm planned to add 1,500 to 2,000 employees each
year in China over the next few years.
PwC claims it is now 50 percent larger than
rival Ernst & Young and double the scale of
KPMG in terms of its partners in China. PwC
has 8,000 people at its 12 offices and expects its
payroll to grow at least 50 percent in the next
several years, DiPiazza said.
The firm’s China clients include PetroChina,
the biggest refinery in Asia, two of the mainland’s
big-five banks and two of the country’s top four
telecom companies.
DiPiazza noted the accounting firm intended
to grow organically in China and not through
acquisitions.
December 2006
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Greater China news
news digest
taiwan
Taiwan leader defies corruption charge
Taiwan’s President Chen Shui-bian has blamed
ambiguities in the budget and accounting regulations
for his alleged misuse of a secret diplomatic fund.
In an hour-long televised speech, Chen said he would
tough out charges of corruption, according to a report
in The Australian.
He insisted he and his wife Wu Shu-chen were
innocent of hijacking US$600,000 from the secret fund
for their own purposes.
Wu was formally indicted last month following a
three-month investigation, which concluded that she
used the money to buy expensive items for her son,
daughter, son-in-law – who is charged separately with
insider trading – and grandchildren.
The public prosecutor said there was enough
evidence to charge Chen too, and although his office
gave him immunity, he might be charged in 18 months
when his second term as president expired.
Accounting crackdown
reveals cooked books
A nationwide crackdown on false accounting has exposed the fact that
a large number of Chinese companies are cooking their books, Xinhua
reported from a report from the Ministry of Finance (MOF).
Last year’s MOF’s inspection covered 94 enterprises, mostly state-owned
enterprises (SOEs) and real estate firms, and 60 accounting firms. The
inspection came after Premier Wen Jiabao ordered stricter supervision of
accounting data.
The 39 real estate firms registered an average profit margin of 12.22
percent, but inspectors revealed the average profit margin was 26.79 percent,
the report says.
According to Xinhua’s report, the firms were blatantly seeking to evade
taxes, resulting in a false report of 9.3 billion yuan in assets, 8.4 billion yuan
in revenues and 3.3 billion yuan in profits. Investigators found some real
estate firms were evading taxes by fictitious bank loans and fake contracts.
“The quality of accounting information and the operation of accounting
firms have generally been improved, but problems still exist with a few
enterprises having serious false accounts problems,” says the report issued by
the MOF.
Investigators found China Worldbest Group, China’s largest
pharmaceutical and textile SOE, tried to hit performance targets set by the
central government by overstating its profits by 241 million yuan in 2003
and investment income by 113 million yuan in 2004.
SAM YEH/AFP/GETTY IMAGES
Half of Macau funds legitimate
Taiwan’s Ministry of Audit in about face
Taiwan’s Ministry of Audit was embarrassed after
prosecutors interrogated Taipei Mayor Ma Ying-jeou
over the administration of his special expense fund,
the Taipei Times reported. The ministry had previously
assured the public that there were no irregularities.
Ministry spokesman Wang Yung-sing was forced
to make an about face last month, saying the ministry
would look at the case again if inspectors found that
invalid receipts had been submitted for reimbursement.
Wang said the ministry had sent its inspectors to
investigate after a staff member of the city government
confessed he had substituted big receipts for small to
cut his paperwork.
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December 2006
U.S. Treasury investigators have reportedly found that half of US$24
million of North Korean funds frozen in a Macau bank is from reputable
sources, Agence France Presse and South Korea’s Yonhap news agency reported.
Don Oberdorfer, an expert on Korea at John Hopkins University, told
South Korea’s JoongAng Ilbo newspaper that U.S. investigators had found
US$6 million belonged to Daedong Credit Bank, a Hong Kong joint
venture, and US$2 million belonged to British American Tobacco, which
does business in the Democratic People’s Republic of Korea (DPRK).
Washington froze the funds by blacklisting Macau’s Banco Delta Asia in
September 2005. U.S. officials said the money was the suspected proceeds of
counterfeiting U.S. currency and other illicit activities by the DPRK.
Oberdorfer said there were growing calls in Washington to unfreeze the
legal funds.
The DPRK boycotted six-party talks for a year in protest at the freeze
and a larger crackdown on its accounts elsewhere in Asia. Future sixnation talks on denuclearizing the Korean peninsula depend on progress in
unfreezing such funds, according to Pyongyang.
International news
KPMG tax
shelter case
postponed
“indefinitely”
U.S. District Court Judge Lewis
Kaplan indefinitely postponed
the tax shelter trial against 16
former KPMG employees on 14
November due to conflicts over
who would pay the defendants’
legal fees, according to news
sources. KPMG had been
pressured by the U.S. Department
of Justice not to pay the
defendants’ legal bills, estimated to run
as high as US$1 million, in order to avoid a criminal indictment,
reported MSNBC. KPMG and the defendants are now locked in a separate trial over
the issue of legal defence fees, which had been ordered by Kaplan.
KPMG was accused by the U.S. Department of Justice of fraudulently marketing
abusive tax shelters in 2005. There are 20 million pages of documents and hundreds
of emails for defence lawyers to contend with. “It is impossible now to predict with
confidence when the charges in the indictment may be tried,” said Kaplan, adding
defendants’ disputes over paying their skyrocketing legal fees would not be resolved
soon, the New York Law Journal reported.
Former Enron chief
accountant sentenced
The U.S. District Court in Houston sentenced Enron’s former chief accounting
officer Richard Causey to five and a half years imprisonment for his role in
the Enron saga – an 18-month reduction thanks to his plea bargain, reported
Bloomberg. Causey originally faced over 30 counts and the possibility of going to
trial alongside Kenneth Lay, former chairman of Enron who passed away in July,
and Jeffrey Skilling, former chief executive officer. Both were convicted in May for
bankrupting the energy giant. Causey broke with the defence of his former bosses
and pleaded guilty weeks before the Lay-Skilling trial was due to begin, according
to the Houston Chronicle.
Causey and Andrew Fastow, Enron’s former chief financial officer, were held
responsible for creating special-purpose entities to hide Enron’s losses and indicted
for wire fraud and conspiracy. Fastow stated that Causey authorized an itemized list
of his side-deal profits called the “Global Galactic” document.
news digest
the world
Grant Thornton’s conquest
Grant Thornton has secured a notable auditing
project, beating Deloitte and KPMG to secure
Murray International Holdings Group. The private
Scottish juggernaut has interests in finance,
property development and the metals industry.
Previously, the Murray Group enlisted several firms
to audit its different enterprises, but decided to
simplify and consolidate its audit structure.
KB Homes’ stock option scandal
KB Homes Chief Executive Officer Bruce
Karatz consented to early retirement and
repaying his former employer US$13 million
when an internal report showed the company
inaccurately reported stock option grants,
reported the Canadian Press. The board
concluded Karatz “selected grant dates under
the company’s stock option plans.”
Dell delays reporting earnings
Dell’s prospects declined further in November
when the computer manufacturer announced
it would delay reporting its earnings due to a
Securities and Exchange Commission (SEC)
investigation into inaccurate accounting, Forbes
reported. The company stated it experienced
“complexity” in compiling initial data for the
present period, preventing it from giving
investors full results, and that the SEC submitted
a formal order of investigation while delving into
Dell’s financial matters.
December 2006
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International news
news digest
the world
Airline clips accountant’s wings
Shoko Nagata, a 40-year-old former All Nippon
Airways accountant, was arrested in November
for embezzlement, reported Kyodo News. It
is alleged that she stole ¥28 million between
July and August 2005. Nagata
confessed she embarked
on a lavish shopping spree,
purchasing designer
goods, securities and
real estate.
Enterasys
CFO’s fraud
Enterasys
Networks’
former chief
financial
officer Robert
Gagalis faces fraud and
conspiracy charges along with four
other ex-executives. The five allegedly
lied about the company’s performance so that
restructuring efforts appeared successful,
reported Bloomberg. Assistant U.S. Attorney
William Morse asserts that Gagalis spearheaded
a 2001 attempt to deceive investors by inflating
the company’s revenue by about US$10 million
and backdating deals.
Green pastures
Ireland’s accountancy firms plan to recruit
1,771 staff over the next 12 months, up 11
percent over the past year, reported Business
World. PricewaterhouseCoopers plans to recruit
an additional 491 staff while KPMG plans to hire
430 staff.
Accountants outgrowing London
The accountancy job market in Yorkshire,
northern England, is growing up to three times
faster than any other region of the U.K., Yorkshire
Today reported. Recruitment in Yorkshire and
the northeast has increased by 33 percent
compared to 12 percent in London. Leeds,
Yorkshire’s capital city, is the largest financial and
professional services centre outside London.
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December 2006
SEC wants tighter
controls on hedge funds
U.S. Securities and Exchange Commission Chairman Christopher Cox said
the SEC would propose new rules designed to decrease the risk of investing in
hedge funds, news sources reported. One proposal is to double the net worth
requirement for individuals to US$2 million, exclusive of real estate holdings,
according to the Associated Press. “We’re going to make it very clear that hedge
funds are risky investments that are not for mom and pop by fencing… off
with higher standards to accrediting investors,” said Cox
during an interview with Bloomberg. Another proposal being
considered is a new hedge fund antifraud rule.
The proposals will be aired at a public
meeting of the agency on 13 December
in Washington, D.C. Lawmakers in the
U.S. Congress have been worried about
the prospect of a financial disaster with
hedge funds and potential pension fund
losses after Amaranth Advisors LLC lost
US$6.5 billion on bad natural gas trades
in September, according to Bloomberg.
A kinder, gentler
Sarbanes-Oxley?
Section 404, the most contentious
element of the Sarbanes-Oxley Act,
could get an overhaul soon. According to the Financial Times, the Public
Company Accounting Oversight Board (PCAOB) is expected to produce
revised guidelines on the extent to which auditors should check a company’s
internal controls. Such an overhaul has been a key request of the Securities
and Exchange Commission (SEC), which has also been working on revised
guidelines for how management should conduct internal controls.
The PCAOB’s Auditing Standard No. 2 has been criticized for leading
to overly rigorous auditing. SEC Chairman Christopher Cox has requested
that PCAOB Chairman Mark Olson create new guidelines that take into
account a company’s size, the Financial Times reported. Cox has suggested
that companies with a market capitalization up to US$787 million may only
require a check of their internal control design and that an external audit every
year may not be necessary.
At a news conference on 17 November, Olson said that “there is almost
no difference in what the goals are,” adding, “I would say that we (the SEC
and the PCAOB) are very close in terms of the specifics as well,” the Financial
Times reported.
Worldwide partnership formed
Mazars and Moores Rowland International have agreed in principle to create
a new global alliance of independent firms operating under the name Praxity,
Web CPA reported. Mazars is an international group specializing in accounting,
tax and advisory services, and has partnerships in 38 countries. Moores Rowland
International is an association of independent accounting practices.
The two firms expect to achieve global coverage with turnover of more than
US$2.5 billion. Members approved a resolution to dissolve Moores Rowland before
31 March 2007 and a similar approval is expected from Mazars’ partners this month,
enabling them to apply to Praxity. Further information about Praxity is due to be
released in early 2007.
KPMG chief laments lack of
accounting convergence
Chairman Michael Rake of KPMG International told attendees at a regional
conference in Dubai last month that businesses are frustrated with lacklustre
developments in accounting convergence, Gulf News reported. “We have the U.S.
accounting standards on the one hand and the international accounting standards on
the other,” Rake said during his opening address to KPMG partners. “They should
be converged to a principles-based approach which is more comprehensible, but
people feel that is not happening at the right pace. The U.S. GAAP is a mess and the
International Financial Reporting Standards needs greater clarity...”
The CEOs of the Big Four and some mid-tier firms released a document last
month in Paris advocating radical reforms in current reporting standards, reported
the Financial Times. The general consensus: Investors need information that is
relevant, reliable, timely, simply presented and comparable across jurisdictions.
news digest
the world
Hedge fund manager’s
assets frozen
A U.S. federal court in mid-November froze the
assets of Spiro Germenis, a New York hedge fund
manager, for embezzling over US$6 million from
investors, many of whom were elderly. Germenis
diverted resources from his two hedge funds
– Oracle Evolution, LLC and Oracle Services Inc.
– for personal use, Investment News reports.
According to the Securities and Exchange
Commission, he has absconded to Greece.
Spitzer takes Grasso to school
New York Attorney General, Governor-Elect
Eliot Spitzer has authorized University of
Utah finance scholar and former New York
Stock Exchange (NYSE) consultant, Hendrik
Bessembinder to assess the performance of
former NYSE Chairman Richard Grasso. “The
NYSE’s performance deteriorated during Mr.
Grasso’s peak compensation years,” wrote
Professor Bessembinder, according to The Wall
Street Journal. An attorney for Grasso stated
the fact that the NYSE directors found Grasso’s
leadership effective outweighed such assertions.
Martial law to go?
Martial law in Thailand could be lifted, or at
least partially lifted, before the end of the month.
“It depends on the situation and the movement
of various groups. We have to take that into
consideration when deciding whether to abolish
martial law,” South China Morning Post reported
Air Force Chief Chalit Pukbhasuk as saying.
General Sonthi Boonyaratglin ousted Prime
Minister Thaksin Shinawatra on 19 September.
National Party loses its leader
Don Brash, leader of the National Party in
New Zealand, stepped down on 23 November,
the South China Morning Post reported. “It has
become increasingly clear in recent months
that there’s a growing expectation that I’ll
step down well ahead of the next election.
That ongoing speculation is damaging to the
National Party and to our future prospects,”
Brash was reported as saying. The Labour Party
had labelled Brash, the former governor of the
Reserve Bank, as untrustworthy and prone to
backtracking under pressure.
December 2006
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