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TechWatch 191

September 2018



Meeting minutes

Ethics Committee

Summary of the 238th meeting of the Ethics Committee is now available.

Hong Kong Insurance Implementation Support Group

The Hong Kong Insurance Implementation Support Group’s 26 July meeting summary and updated submission log are now available.

Local updates

Roundtable discussions on financial instruments

The Institute will host a series of roundtable discussions to share the latest thinking on how financial instruments with characteristics of equity will be reported in the future. Preparers, analysts, investors and other users of financial reports are invited to join the roundtable to share their views or concerns on the way issuers report these types of instruments today and the latest thinking:

  • Preparers of financial reports: 30 October

  • Analyst, investors and other users of financial reports: 1 November

Email outreachhk@hkicpa.org.hk your name, organization and contact number if you want to have a say and share your views. An education session on the proposals will be provided before each of the discussion.

If you cannot attend the roundtable but would like to share and discuss the topic, please email eky@hkicpa.org.hk.

Feedback Statement on the Post-implementation Review of Accounting Guideline 5 Merger Accounting for Common Control Combinations

In 2016, the Institute’s Financial Reporting Standards Committee (FRSC) issued a Request for Information to conduct a post-implementation review (PIR) of the Accounting Guideline 5 Merger Accounting for Common Control Combinations.

After consolidating the feedback collected from the PIR, the Institute published the feedback statement which includes an analysis of the feedback received and the possible next steps the FRSC may take. All the feedback from comment letters received and summaries of outreach meetings held have also been published.

Invitation to comment

The Institute is seeking comment on IASB Discussion Paper DP/2018/1 Financial Instruments with Characteristics of Equity by 9 November.

International updates

IFRS updates

  • New IFRS 17 Insurance Contracts webcast
  • Summary of the June 2018 joint Capital Markets Advisory Council and Global Preparers Forum meeting
  • Education modules to support IFRS for SMEs
  • IASB chairman spoke about goodwill accounting at a Tokyo conference
  • Lecture delivered by the IASB board member, Ann Tarca, on the role of accounting information and its relevance

Professional accountants in business

Business models of the future

ACCA has recently published a report entitled Business models of the future: systems, convergence and characteristics, which explores what lies behind business model innovation. The report identifies 12 characteristics that business models of the future are putting together in different combinations – and their “plug and play” nature – which is driving business model design today. The report also assesses today’s socio-economic landscape against which value creation takes place. It outlines a set of approaches for professional accountants to consider when they look to apply business model of the future characteristics to their own work and build new value for their organizations, now and into the future.

Corporate finance

Institute comments on HKEX consultation on backdoor listing

The Institute issued a submission responding to Hong Kong Exchanges and Clearing’s (HKEX) proposals to tighten the backdoor listing rules and tackle shell activities in order to maintain market quality and reputation. While we support the general direction of HKEX’s proposals, the submission suggests that some greater flexibility may be called for. Among the considerations raised by the Institute are:

  • To avoid tightening the rules in a way that could restrict issuers’ normal business activities, which might include disposing of/changing some business lines for the long-term benefit of shareholders
  • Not to preclude the possibility of smaller “growth” and “new economy” companies expanding via acquisitions
  • To allow sufficient flexibility to facilitate the rescue of issuers in financial difficulty through the injection of new assets
  • To provide further explanation and clarification of certain terms and concepts and how they are to be applied

​HKEX consultation on review structure for listing committee decisions

On 10 August, HKEX released a consultation paper to seek views on proposals to revise the review structure for listing committee decisions. This represents the HKEX’s response to the Joint Consultation with the Securities and Futures Commission (SFC), concluded in September 2017, on Proposed Enhancements to the HKEX's Decision-Making and Governance Structure for Listing Regulation. One of the conclusions was that HKEX would conduct a separate consultation on replacing the listing committees with independent committee(s) and simplifying the review structure. The current proposals aim to enhance the transparency, accountability and consistency of the decision-making process. A summary of the proposals is set out in the press release.

The deadline for responding to the consultation paper is 12 October.

HKEX consultation conclusion on exempting aircraft leasing activities from notifiable transaction rules

The HKEX published Consultation Conclusions on its proposed exemption for qualifying aircraft leasing activities on 17 August.

Qualified aircraft leasing activities carried out by qualified aircraft leasing lessors, subject to certain criteria and conditions, are not required to fulfil specific disclosure and/or shareholders’ approval requirements applicable to notifiable transactions. Instead, alternative disclosure by way of announcements in their interim/annual reports will be required. The exemption addresses the practical difficulties that relevant issuers have in complying with the notifiable transaction requirements, in relation to transactions that are carried out in their ordinary and usual course of businesses. A summary of the amendments is set out in the press release.

The amendments will be effective from 15 October.

SFC consults on proposed guidelines for securities margin financing activities

On 17 August, the SFC launched a consultation on proposals to implement and adjust the guidelines for securities margin financing (SMF) activities, to enhance the risk management practices for margin lending and increase SMF brokers’ ability to overcome the stock market volatility. In particular, the SFC proposes to strengthen controls and implement new guidelines to avoid excessive leverage and reduce concentration risk in both securities collateral and individual margin clients.

The deadline for responding to the consultation paper is 18 October.

Taxation

Announcements by the Inland Revenue Department

Members may wish to be aware of the following matters:

  • Double taxation agreement with Saudi Arabia enters into force
  • New advance ruling case published
  • Gazettal of a legal notice to effect the change in the rate of interest payable on Tax Reserve Certificates
  • The government’s plan to expand the list of reportable jurisdictions for the implementation of automatic exchange of financial account information
  • List of qualifying debt instruments

Institute’s recent tax submissions

The Institute’s Taxation Faculty has responded to the proposed legislative amendments on adoption of fair value accounting for financial instruments for tax reporting.

Legislation and other initiatives

Anti-money laundering/counter-terrorist financing notices Members should note the following notices and publications in relation to anti-money laundering and counter-terrorist financing (AML/CFT):

  • Government notice (extraordinary) 48:
  • An updated list of terrorists and terrorist associates has been specified under the United Nations (Anti- Terrorism Measures) Ordinance.
  • An updated list of relevant persons and entities under the United Nations Sanctions (Democratic People’s Republic of Korea) Regulation.
  • Specially designated nationals and blocked persons list, published by the United States Treasury’s Office of Foreign Assets Control. More details on the Resource Centre of the Treasury.

AML/CFT guidance

For mandatory guidance and information on the AML/CFT requirements for members, see the Institute’s “Guidelines on Anti-Money Laundering and Counter-Terrorist Financing for Professional Accountants.”

Members who are licensed trust or company service providers should also see the Guideline on Compliance of Anti-Money Laundering and Counter-Terrorist Financing Requirements for Trust or Company Service Providers, by Companies Registry.

Members should be aware of the Hong Kong Money Laundering and Terrorist Financing Risk Assessment Report (in particular Chapter 6, covering designated non-financial businesses and professions), which indicates money laundering or terrorist financing risks and vulnerabilities in the Hong Kong market.


Please refer to the full version of TechWatch 191