Home' A Plus Magazine : Dec 2012 Contents January 2012 27
Osman Arab, Partner
Eugene Liu, Partner
Patrick Lo, Partner
Dicky To, Partner
Connected for Success
authorities on observational visits. By
the same token, the Ministry of Finance
might grant permission for the disclosure
of audit working papers to the Hong Kong
Securities and Futures Commission with
conditions that the review must be done
in the presence of their officers and the
client under review does not involve any
sensitive information concerning state-
Other issues likely to emerge in 2013
regarding the audit of Mainland compa-
nies would continue to be problems with
fraudulent transactions and related-par-
ties transactions disclosures.
International tax issues such as transfer
pricing and applicability of double tax
agreement benefits have become more
important to most companies, in light
of the fiscal difficulties faced by most
countries in the world. We foresee signifi-
cant growth in international tax advisory
works in the next few years.
The Hong Kong government should
introduce tax relief and other policies to
foster a more favourable business envi-
For example, Section 39E of the In-
land Revenue Ordinance should be abol-
ished as it creates a substantial financial
burden to a number of taxpayers with
manufacturing operations in China which
cannot obtain any tax relief for capital ex-
penditure incurred for plant and machin-
ery used outside Hong Kong. Singapore
grants a 400 percent super-tax deduc-
tion on capital expenditure incurred for
research and development and intellec-
tual property under certain conditions
while in Hong Kong, taxpayers can only
receive a 20 percent deduction annually
for five years.
The government should also consider
a comprehensive green tax regime, such
as resource consumption levy or taxes on
Globalization, volatility in the financial
markets and technological advancement
have resulted in risks becoming more com-
plex, less predictable and more diverse.
Hong Kong, being a major part of the glob-
al financial market and a gateway to China,
faces similar risks and challenges.
Corporate governance for Hong Kong-
listed companies has been further en-
hanced concerning board accountability,
effectiveness and independence.
The introduction and assimilation of
new technologies, such as the use of social
media, mobile technology, smartphones
and tablets, will bring associated risks.
Tough economic times call for even
greater operational efficiencies to re-
duce costs. Companies are looking at in-
vesting in process, tools and training to
achieve greater productivity. Established
controls will need to be re-evaluated to
ensure that the control design and effec-
tiveness remain adequate and optimal.
The slowdown in Hong Kong’s initial pub-
lic offerings during 2012 was primarily
caused by unstable global economic con-
ditions. However, we have been seeing
fund raising pick up in the fourth quarter
of 2012 and will probably accelerate in
Equity financing by placement and
private offering of Hong Kong-listed com-
panies have been strong, with owners of
listed companies selling large holdings of
their existing shares.
For debt financing, the renminbi de-
posit base in Hong Kong continues to
grow and the investor base for RMB-de-
nominated bonds becomes more diverse
and less speculative.
Hong Kong banks may struggle with
meeting the liquidity requirements of Basel
III due to a shortage of qualifying assets.
The intermediation of RMB funds will
move towards issuance and investment
of bonds and a wider range of other finan-
cial instrument and products.
This year saw a steady decline in formal
court restructurings and insolvencies.
Activity levels in terms of restructuring
and insolvency remain steady but senti-
ment is being overshadowed by global
As market volatility continues, insol-
vency practitioners expect to see work-
Given the current economic downturn,
we will see increased demand for forensic
accounting, computer analysis and e-dis-
covery services as the public sector deals
with financial collapses, increased white-
collar crime and growing occurrences of
Owing to more stringent regulatory
requirements by the SFC and Hong Kong
stock exchange, forensic accountants are
seeing an increased level of activity as-
sisting with regulatory investigations.
With the new civil justice reform stipu-
lations in place, mediation, arbitration,
negotiation and collaborative laws are
being widely explored by both parties in a
dispute before concluding that litigation is
the only remedy to resolve the difference.
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