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TechWatch 184

February 2018



Members’ handbook updates

Handbook updates nos. 212 to 213

Update no. 212 contains revised Practice Notes PN 620.2, PN 810.1 and PN 810.2.

Update no. 213 relates to amendments to HKAS 28 Investment in Associates and Joint Ventures.

Financial reporting

Institute’s comments on IASB exposure draft

The Institute commented on the International Accounting Standards Board (IASB) exposure draft ED/2017/5 Accounting Policies and Accounting Estimates and ED/2017/6 Definition of Material.

CFO forum on HKFRS/IFRS 17 Insurance Contracts

On 29 January, over 140 representatives from Hong Kong insurance companies met with the Hong Kong Institute of CPAs and IASB representatives, including IASB Chair Hans Hoogervorst.

The Institute and IASB stressed that insurers should not be deterred from implementing the standard. Standardsetters can only assist when they have objective and rational evidence on implementation or endorsement challenges – late implementation would not be a rational reason for deferring the standard.

Investor education sessions on new and major standards

On 1 February, over 20 users of financial statements, including investors and analysts, attended the joint Institute-IASB education sessions on:

  • IFRS 9 Financial Instruments;
  • IFRS 15 Revenue from Contracts with Customers;
  • IFRS 16 Leases; and
  • IFRS 17 Insurance Contracts.

Users appreciated the improved disclosures and recognition principles. Some users are nonetheless concerned about the need for more management judgment, but have been informed that judgment areas and the underlying assumptions are required to be disclosed. Companies should therefore spend time in ensuring their financial reports provide sufficient, clear and entity-specific information about their accounting policies, judgments and estimates.

Professional accountants in business

HKEX publishes review results of disclosure in issuers’ annual reports

As part of its regular regulatory activities, Hong Kong Exchanges and Clearing (HKEX) reviews listed companies’ annual reports to monitor their compliance with the Listing Rules, corporate conduct and disclosure of material events and developments, and releases its findings and recommendations to improve transparency and promote a fair, orderly and informed market. 

On 26 January, HKEX published a report on the findings and recommendations from its review of issuers’ annual reports for the financial year ended between January and December 2016.

The report provides guidance on specific areas that were selected with reference to the issues observed through HKEX’s monitoring efforts and the latest regulatory developments.

Members, in particular preparers of listed company’s annual reports, are encouraged to take note of the observations and recommendations discussed in the report and follow the relevant guidance to enhance their annual reports and ensure they comply with the Listing Rules.

Keeping of significant controllers registers by companies

The Companies (Amendment) Ordinance 2018 (the Amendment Ordinance) will come into operation on 1 March. The Amendment Ordinance introduces new requirements on the keeping of significant controllers registers by companies incorporated in Hong Kong to enhance the transparency of corporate beneficial ownership.

Please refer to the Companies Registry External Circular No. 2/2018 and the Guideline on the Keeping of Significant Controllers Registers by Companies for details about the new requirements, and visit a dedicated thematic section on Significant Controllers Register of the Companies Registry (CR) website.

The CR has set up a dedicated hotline (3142-2822) for handling enquiries relating to the new requirements. Email enquiries can be sent to cr.scr@cr.gov.hk.

Corporate finance

SFC highlights compliance failures in product selling practices

On 25 January, the Securities and Futures Commission (SFC) published a circular to list out a number of compliance failures during its on-site inspections and investigations of the distribution of complex bonds and structured products by licensed corporations (LCs).

The circular reminds LCs of their obligations to comply with the suitability requirement and, in particular, draws attention to the SFC’s expected standards for product due diligence, measures to identify whether any suitability obligation has been triggered, assessment of suitability framework and retention of compliance records. LCs are expected to take note of the areas discussed in the circular and take immediate action to rectify any deficiencies.

Guidance on best execution of licensed corporations expected by SFC

On 30 January, SFC issued a circular which sets out guidance on the standards of conduct and internal controls it expects of LCs in delivering best execution.

The circular reminds LCs that they should execute client orders on the best available terms, as delivering best execution is fundamental to market integrity and the protection of investors who rely on LCs to act in their best interests. This is particularly important in light of the increased speed and complexity of trading, as execution is now mainly automated and electronic and LCs offer multifaceted products and services including many with unique features.

The SFC also issued a Report on the Thematic Review of Best Execution to provide detailed observations from the thematic review and highlight good industry practices for LCs to take into consideration.

Process Review Panel for SFC publishes annual report

The Process Review Panel (PRP) for the SFC is an independent, non-statutory panel established by the Chief Executive to review the internal operational procedures of the SFC and to determine whether the SFC has followed its internal procedures for ensuring fairness and consistency. 

The recently published PRP 2016-17 annual report sets out that the PRP conducted a comprehensive review of the internal processes and procedures of the SFC through 62 completed or closed cases under different areas of the work of the SFC. 

It made a number of observations and recommendations to the SFC for consideration, which would be conducive to the fair and consistent exercise of regulatory powers by the SFC and enhancing the SFC’s transparency and accountability.

Legislation and other initiatives

The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Bill 2017 and the Companies (Amendment) Bill 2017

The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions)(Amendment) Bill 2017 and the Companies (Amendment) Bill 2017 were passed in the Legislative Council on 24 January. New legislative requirements under the two amendment bills will come into effect from 1 March. Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) introduces new requirements on customer due diligence and record keeping for accountants and trust or corporate service providers (TCSPs) that prepare for or carry out specified transactions for their clients. The Institute earlier consulted members on guidelines to help members comply with AMLO. Following the passage of the legislation, the final version of the guidelines will be gazetted soon.

Anti-money laundering notices

Members should note the following notices and publications in relation to anti-money laundering/combating the financing of terrorism:

  • Companies Registry (CR) has issued anti-money laundering guidelines for TCSPs and a guideline for companies on the keeping of significant controllers registers; and various CR forms relevant to TCSPs have also been published.
  • Government notice 165: an updatedlist of terrorists and terrorist associates has been specified under the United Nations (Anti-Terrorism Measures) Ordinance. 
  • Specially designated nationals and blocked persons list, published by the U.S. Treasury’s Office of Foreign Assets Control. More details on the Resource Centre of the Treasury.

Inland Revenue (Amendment) (No. 7) Bill 2017

The amendment bill deals with legislative changes in relation to the two tier tax system. The Institute made a submission to the Legislative Council on 6 February and the Institute receivedthe government’s response recently.

Taxation

Announcements by the Inland Revenue Department

Members may wish to be aware of the following matters:

  • A bilateral arrangement between Hong Kong and France for automatic exchange of Country-by-Country Reports.
  • Inland Revenue (Amendment) Ordinance 2018, which makes certain technical amendments to the framework for automatic exchange of financial account information, has been gazetted.
  • The Stamp Duty (Amendment) Ordinance 2018, which has been gazetted, increases the ad valorem stamp duty (AVD) rate on certain instruments executed on or after 5 November 2016 for dealing with residential properties to a flat rate of 15 percent. For Hong Kong permanent residents who change their residential property and want to claim partial refund of the AVD, the legislation also extends the time limit for disposal of the originalproperty, to within 12 months after the date of conveyance of the new property.
  • Suspension of Service for Filing of Tax Return – Individuals through eTAX.
  • Bogus phone calls purporting to be made by IRD.
  • List of qualifying debt instruments (as at 31 December 2017).
  • Stamp Duty statistics (December 2017).

Please refer to the full version of TechWatch 184