STUDENTS SECTION. Authorised Employer / Authorised Supervisor (AE/AS) Scheme. Director s Message

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1 Director s Message Authorised Employer / Authorised Supervisor (AE/AS) Scheme Dear Registered Students, Come 1 January 2005, the AE/AS scheme, which was adopted in September 2002, will become mandatory after 28 months of pilot implementation. All registered students are required to obtain the appropriate type and level of practical experience under an AE or AS registered with the HKICPA on and after that date. The scheme prescribes a more structured competency-based requirement for experience under the guidance of an AE or AS. It is an extension of the competency-based framework of the CPA QP, and more clearly defines the knowledge and skills that prospective members need to possess to satisfy the Institute s admission requirement for membership, and gain membership reciprocity with the chartered accountancy institutes. Please use the record form in the Prospective Members Training Guidelines (PMTG) to document your period of experience gained after 1 January Your experience completed prior to this date can be recorded in the old form but if your employer or supervisor is already an AE or AS, you are encouraged to use the form in the PMTG. As meeting this practical experience requirement will be essential to your satisfying HKICPA membership admission rules and help you in your professional development, you are strongly advised to check whether your employer/supervisor is already registered as an AE/AS by visiting the Membership Services at the Institute s website: If they are not registered, check whether they are eligible to apply for registration and encourage them to apply. For more details, please refer to the letter regarding the AE/AS scheme issued by our chief executive & registrar this month. Subscription renewal The annual subscription renewal notice was sent to students on 17 December. Your studentship brings you many privileges similar to those of HKICPA members, including the three-in-one Wing Lung VISA Gold Card, subsidised CPD programmes and many special offers and discounts. Renew your subscription promptly to enjoy these attractive benefits, which have a much greater value than your annual fee. In line with our policy to promote information technology (IT), students are encouraged to communicate with the Institute by . Please kindly let us have your address when you renew your subscription, to facilitate future communication through the Internet. This way, you can receive information from the Institute a lot quicker. Students survey At the HKICPA, we take pride in providing students with value-added services. I would like to thank all students for their support and feedback during the year. We greatly appreciate your suggestions as they help us improve our services. The Student Training and Development Committee will conduct a survey in the next few months to better understand your needs as our registered students. We hope to use the results to plan student activities for Therefore, I would like to urge you to spare a few minutes to complete the survey questionnaire, as your opinions will help us to improve our student services and make it more responsive to your needs. Thanks and best wishes This has been another fruitful year for the Education and Training Department as you can read from the Institute s annual report posted on our website. I would like to take this opportunity to express our heartfelt gratitude to the members of the committees, task forces and working groups and their sub-committees supported by the Department, as well as to our examiners, assessors, workshop facilitators/observers, panelists, speakers and lecturers for their invaluable support and contribution. Without their input, the Institute would not be able to administer the professional examinations and accreditation and offer such an extensive range of student and CPD services. As the year draws to an end, plan your expectations for a new year ahead. If you expect poor outcomes, a self-fulfilling prophesy might occur. So, plan for exciting, positive or challenging outcomes. Put priorities into what you have planned. With focused efforts, you should be able to reap good results. In the spirit of the festive season, on behalf of the Institute, I would like to wish you a very Merry Christmas and a Happy and Prosperous New Year! Yours truly, Georgina Chan Director, Education & Training Department 26

2 Top CPA QP Candidates The Institute is pleased to announce the top candidates of Modules B & D of the May 2004 session. Module B (Financial Management) Ms Lo Oi Yin obtained her Bachelor of Business Administration in Professional Accountancy from The Chinese University of Hong Kong in She is now an Associate at PricewaterhouseCoopers. Module D (Taxation) Mr Chu Sze Nam obtained his Bachelor of Arts (Hons) in Accountancy from The Hong Kong Polytechnic University in He is now a Staff Accountant I at Deloitte Touche Tomatsu. CPA QP results for May 2004 Session The Institute is pleased to announce the latest results of the CPA Qualification Programme (CPA QP). The pass rates (see Table 1) of the Professional Programme Modules B and D ended in September 2004 are as follows: Workshop Module Examination Overall Pass Rates* Module No. Sat Pass Rates No. Sat Pass Rates B (Financial Management) % % 78% D (Taxation) % % 72% * Overall pass rates refer to passes in both the workshop assessment and the module examinations. Table 1 CPA QP Examination Panelists Report Module B Financial Management (May 2004 Session) Section A Case Questions The Case Questions were quite straightforward. However there was a divergent performance by the candidates, with some scoring high marks and some scoring poorly. In general, the performance of candidates was unsatisfactory. Like previous sessions, candidates continued to indicate their weakness in application of knowledge. Most of their answers were direct citation of textbook definition without applying the knowledge into the case scenarios. Some of the candidates handwriting and presentational skill could be improved. A well-planned and structured answer with one point per short paragraph would not only help to allocate time evenly, address the question punctually but also made the points more appealing and easier to identify by markers. Due to poor time management, some of the easy questions were not attended or only partly completed. Question 1 For part (a), in general, candidates answered the question well. Some candidates were not aware of the requirement of the question and missed the presentation mark. Most of the candidates identified three strategies (cost leadership, differentiate and focus) under Porter s Generic Strategies Model. However, some poor performer merely cited the textbook features without comparing them with the existing strategies. In part (b), many candidates only described the characteristics of each phase of the product life cycle without analysing the current stage of the new Quality Brand in the Mainland. Candidates could have scored good marks in part (c) if they had practised beforehand. Most of the candidates only came up with the right answers for contribution margins, and only a few candidates could work on the profitability questions. Missing out on the taxation element was very common. Candidates did badly in part (d) because they were unable to analyse critically and reason technically to reach a logical answer. They did not know 28

3 what actions to take at different stages of the market. In part (e), most of the computation on NPV had missed the tax effect on depreciation. Some candidates did not show a breakdown to support the calculations. Very few candidates know how to work on the payback period. For part (f), candidates commented on the points to be alert for and the assumption issues of NPV but did not treat this question as an appraisal of an investment project and missed the points. Also, matters to be alert for brought up by the candidates were often outside the scope of the questions. Question 2 Most of the candidates did well in this question. However some did not calculate the profits in 2005 and Some discussed the business ethics of the company instead of the professional ethics of James. Also, some failed to mention the incentive of a bonus on James. In general, candidates could advise what the firm should be doing. Section B Essay / Short Questions In general, candidates performed satisfactorily in Section B, especially on calculation type questions. Most candidates could finish answering all questions in this section. Weakness was found mainly on analytical problems. For example, a large portion of candidates could not identify the problems in ratio analysis in Question 3. Non-performing candidates answered questions without thinking about the requirements of the questions; they might need to spend more time to read questions and brush up on their answering techniques. Typical problems such as misunderstanding of the question was still very common among candidates. Besides, candidates should pay more attention to their handwriting, grammar and presentation of their answers. Question 3 For part (a), most candidates answered this part well. They were capable of analysing the strength and weakness of the firm. However, liquidity and leverage were the problem areas. For part (b), most candidates failed to identify the one-off impact, so this part was poorly answered. Not many candidates were aware of minimal meaning in comparing the distorted ratios. Most did not mention the impact on the firm s share price and efficiency ratios. Part (c) was answered fairly well. Not many candidates mentioned survival bias. Question 4 In general, part (b) was well answered. Yet most candidates missed the impact of lower share price on a higher cost of equity. Again, for part (c), satisfactory performance was observed. Nevertheless, many candidates failed to mention the impact on cost of equity by taking more debt. Part (d) was not well answered. Only a handful of candidates could mention no compelling evidence that dividend policy affects the cost of capital. Part (e) was a more straightforward part in this question with splendid performance on average. Part (f) was another good one from candidates. That a risky venture leads to high cost on both debt and equity capital is quite obvious. Question 5 Most candidates performed well in parts (a) to (c). Yet some missed the rounding to nearest hundred of dollars. For part (d), most candidates did well in this part. Some failed to specify the purchase of an NZD forward contract. Some mentioned unexpectedly the saving as losses. For part (e), above average performance was observed. Most candidates could mention options and futures, but not in detail. It might indicate that the technical knowledge of financial derivatives among candidates was on the low side. CPA QP Examination Panelists Report Module D Taxation (May 2004 Session) Section A Case Questions This part covered several important issues in Profits Tax and Salaries Tax. The questions were open-ended and candidates were required to pinpoint specific tax issues in situations as described in the case. The overall performance in this part was less than satisfactory. On average, candidates showed that they understood the issues that they were dealing with, however, in most of the situations they did not discuss the relevant tax implications in the issues identified. Their answers tended to be superficial and lacked in-depth discussion and application of the relevant tax knowledge to the case. There was too much direct copying from the CLP without showing their relevance to the case. Thus the answers tended not to be critical enough to earn the marks as required. This demonstrated that, on average, candidates did not possess the level of competency as required. Time management during the examination appeared to be a problem to many candidates. Sometimes, they provided discussions that were irrelevant. Providing irrelevant discussions was one of the reasons why DECEMBER 2004 THE HONG KONG ACCOUNTANT 29

4 candidates did not have enough time to complete all parts in the examination. Question 1 (a) Generally the answers were poor in this part. Although most candidates were able to point out the profits tax liability of a proprietorship business in sub-part (i) and the profits tax liability of a limited company in sub-part (ii), only a few discussed major tax differences between the two, such as deductions under profits tax treatment of losses, election of personal assessment and filing obligations. Sub-part (iii) dealt with Salaries Tax, again the majority of candidates did correctly point out the tax implications of having a Hong Kong employment versus a foreign employment, but not many discussed the various exemptions available under Salaries Tax. Questions 1 (b) and 1 (c) These two parts were generally well performed, except a few candidates were unaware of the recent increase in the limit of the deduction of donations to approved charitable organisations from 10 per cent to 25 per cent in part (c). Question 2 Many candidates knew that this question was about the possible challenge under section 9A. The answers, however, showed that most candidates did not provide adequate analysis. Most of them simply copied the statutory provisions or notes from the CLP without discussing whether section 9A was applicable to the situation. Moreover, most candidates did not discuss the tax implications if section 9A was applicable or otherwise. Question 3 Many candidates obtained a pass in this question mainly because they picked up the easy marks in part (b) which required candidates to discuss the ethical and tax implications of the nonreporting of the part-time income. However many candidates did not discuss the issue of whether the parttime income should be chargeable to Profits Tax or Salaries Tax. Question 4 Most candidates did well in part (a) which required discussing the tax issues of acquiring equipment. However in part (b), only an exceptionally few candidates discussed the application of section 15(1)(c) to the lessor while it was obvious that the question required discussion of the tax implications of the transaction to both parties of the transaction. Section B Essay/Short Questions Candidates should present their answers in a more organised way and improve their time management. Question 5 Part (a) required candidates to do a salaries tax computation. This was generally well answered. Part (b) asked candidates to advise the couple whether they should elect joint assessment. Many candidates simply commented in general terms how a joint assessment might reduce the couple s overall tax liability. They assumed that the availability of the un-utilised personal allowance of the wife would definitely work to the couple s advantage, which unfortunately was not the case here. Candidates should realise that it was almost impossible to give proper advice for such a question without actually calculating the tax liabilities under separate and joint taxation. Question 6 Part (a) was another computational question. Most candidates could score some marks for individual items. Parts (b) and (c) were questions on stamp duty. While many candidates were able to give the right answers, few were able to highlight the legal principles behind the treatments and point out the relevant legislation. Question 7 Part (a) required discussions on the territorial source issue for a foreign company to set up a branch in Hong Kong. Most candidates were able to set out some relevant points and arguments but their answers were generally not well organised. Parts (b)(i) and (b)(ii) were straightforward questions on ascertainment of the branch s assessable profits and pre-commencement expenditure. Candidates performance was generally satisfactory. Question 8 For Part (a), which was about bad debt deduction, very few candidates were able to identify the relevant issues in the case, i.e. whether the taxpayer carried on a money lending business and whether the loan was made in the ordinary course of that business, if any. For Part (b) on deduction for a prepayment of insurance premium, it was surprising to note that some candidates appeared to be completely ignorant of the issue involved and the existence of DIPN No. 40. For Part (c) on interest deduction, while most candidates were able to point out section 16(2)(d) was the relevant condition in the case, not all of their answers showed that they actually understood the requirements of the section. Part (d) was interrelated to Part (c) and candidates who answered Part (c) correctly generally answered Part (d) correctly as well. Question 9 This was a question on withholding obligations of Hong Kong residents in relation to sums paid to non-resident entertainers. Some candidates displayed a total lack of knowledge in this area and dwelt on a discussion about section 20A and liabilities of resident agents. Candidates who could identify section 20B as the relevant provision answered the question quite well. However, in some cases, the candidates could not identify the relevant sum or applied the wrong tax rate whereas in others the candidates erroneously considered that the sum in question was assessable under sections 15(1)(a) or (b). 30

5 Practical training function Code 201 Business and Career Insight Seminar on 'IT and Accounting' Seminar content: An Enterprise Resources Planning (ERP) system is becoming an integral part of an organisation in order to drive its daily operations and maintain its competitiveness in the marketplace. There are various components for a successful implementation, such as the IT infrastructure, business process review, and role of the finance function to work with other departments. This seminar will address different roles of an accountant in the implementation of an ERP system. It can be a Chief Financial Officer, business analyst, internal control auditor or system accountant. All these roles are important in contributing to the success of an ERP implementation. Speaker: Mr Derry Fong, Managing Director of DA Consulting Limited Mr Fong graduated from Hong Kong Polytechnic 20 years ago. Since then, he has worked for the Inland Revenue Department, one of the international accounting firms as an auditor, and Price Waterhouse Management Consultants. Ten years ago he set up his own consulting company to provide consulting services to the leading organisations in Hong Kong in terms of implementation of Enterprise Resources Planning systems. His clients include American International Assurance, the Housing Authority and the Hospital Authority. Two years ago, Derry started his business activities in China. Now he mostly spends his time in Shanghai, and is leading a number of large-scale ERP projects in Beijing, Shanghai, Guangzhou and Shenzhen. Enrolment Quota: 40 Date & Time: Venue: Enrolment Fee: 7:00 pm 9:00 pm Wednesday, 12 January 2005 To be advised HK$50 Application Deadline: Monday, 3 January 2005!"#$%!"#$%&'(!"#$!"#$%&!"#$ G!"#$!!"#$!"#$%!"#$ G!"#$! =E F = =L=!====APM========== ====AQR G!"OMMN!"#$%&'(!"#$%&'()*+,=E OOUT=TOOUF 32