The Bottomline Division October - December 2005 Issue

Presidential Message

Dear Members of CIMA and readers of Bottomline, • advised Headquarter on our negotiations with the HKICPA on mutual recognition arrangement. Season’s Greetings! In 2005 we have been visited by officers from our UK Headquarter I trust that you have already had a wonderful Winter Solstice and no less than seven times. This is on top of regular quarterly visits a very happy Christmas. As we walk into 2006 may I wish you a to the UK by our Area Representative, Past President Mr Kenneth prosperous new year with lots of exciting opportunities both in Chan. Kenneth was appointed Vice-Chairman of the International business and in personal development. Committee earlier this year. This is the first time that a member of the Hong Kong Division has been appointed to this position. This is Under the leadership of President Albert Law, 2005 has been as much a reflection on Kenneth’s personal achievements as it is on an eventful year for CIMA Hong Kong Division. In addition to the collective achievement of the Hong Kong Division. ‘business-as-usual’ activities the Council, with tremendous help from the Secretariat, organised many other activities to enhance the The Division and our UK Headquarters are very keen to enhance CIMA brand here in this part of the world and to further strengthen branding of the Institute in Hong Kong and Greater in bonding amongst members : general, and to improve on the current support infrastructure to carry out this strategy in the region. You will hear announcements • divisional office moved to prestigious Jardine House on changes to regional governance and administration soon. All these are necessary for the continual promotion of the science • hosted lunch-hour seminar on strategic scorecard presented by of management accounting and the Chartered Institute of Bill Connell and Richard Marlett Management Accountants. Only when the market is fully aware in its own right will we management accountants have a market to • re-launched and held Council Away Day in Macau to formulate make our contributions. divisional strategy Enjoy the rest of the festive season and look forward to • hosted a one-day seminar on ‘Issues affecting corporate receiving your support in the coming year. performance’ in conjunction with Metro Finance Radio and supported by the Securities and Furtures Commission Yours in CIMA,

• advised the Government in response to their call for professional Kingston Ho FCMA opinion on the formulation of the 2006 budget and funding of Vice President Financial Reporting Council CIMA Hong Kong division

• launched the study-buddy group pursuant to actions agreed in Council Away Day

The Bottomline 01 Market Risk Management

What is Market Risk Management? By Karel Vacek

arket Risk Management (MRM) is a special 2 million. Any excess over the limit gets promptly reported by the department of the financial institution which MRM department to the bank management and the excessive measures, monitors, controls and manages the position has to be closed immediately. price risk in the proprietary trading books. Basel M Committee stipulates that ‘a trading book consist of Any FX portfolio of a financial institution contains more than a positions in financial instruments and commodities held either with single foreign currency. The FX risk can be then calculated by trading intent or in order to hedge other elements in the trading variance-covariance matrix method. Let’s consider a portfolio of HKD book.’ In plain language we can say that proprietary books consist 100 million converted in EUR at the rate of 10.5 and HKD 55 million of financial instruments and commodities held for the own trading converted into GBP at the rate of 15.05. With 99% confidence level, account of the financial institution. The main market risk categories the daily volatility of GBP/HKD rate moves over the period of 1 year are FX risk, interest rate risk, equity risk, and derivatives risk. is approximately 1.27%. The correlation of EUR and GBP currencies is about 95%. The resulting VaR of the position is then square Let me explain the concept of the risk measurement on the FX risk. root of (1.3 x 1.3 + 0.70 x 0.70 + 2 x 0.95 x 1.3 x 0.70) = HKD When an FX trading department in a bank in Hong Kong anticipates 1.98 million. VaR of HKD 1.98 million is very close to the limit HKD that the euro currency will strengthen against the Hong Kong dollar, 2 million allocated to the FX trading department. Such high VaR it may purchase EUR say for the would result in warning issued by amount of HKD 100 million. the MRM department to the FX The amount gets converted into Basel Committe stipulates that “a trading book trading department and in alerting EUR at the rate say 10.50 which the bank management. translates into EUR 9,523,809. consist of positions in financial instruments and Should EUR indeed later commodities held either with trading intent or The major challenge in the Market strengthen to 10.60, the position in order to hedge other elements in the trading Risk monitoring is the access to can be closed with a profit of HKD book.” the up-to-date positions of trading 952,375 (ignoring the transaction departments and the real time costs). Should however the EUR monitoring of the market risk. decrease in value say to 10.35 (e.g. due to unexpected negative This requires significant infrastructure and system investment. If economical news from the Euro zone), the position may result in a the above monitoring is only done on the daily basis, any excessive loss (HKD 1,428,577). This is the point where the MRM Department positions cannot be spotted and reduced on the same day, but steps in. most likely on the next day. Therefore through understanding of the trading limits from the front office departments is an utmost First, MRM measures the risk. One of the common methods is priority. MRM department increases the risk awareness among the Value-at-Risk (VaR) number produced through a variance method. whole institution with particular focus on the critical front office The daily standard deviation of EUR/HKD rate moved over the period departments. of 1 year is about 0.56%. Usually, a confidence level of 99% is used, which means that the daily volatility of the FX rate is 2.33 x 0.56% (This article is written in a personal capacity and does not in any way = 1.30%. Therefore the position of HKD 100 million converted into represent the views if Mizuho Securities Limited and/or Mizuho EUR carries VaR of HKD 1.3 million. The practical meaning of the Financial Group.) 99% confidence level is that a loss higher than the VaR number (so-called ‘outlier’) does not occur more often than once every 100 trading days. The loss in the example above is an outlier which Dr. Karel Vacek studied physics at the Charles needs further explanation by the MRM department. University Prague (MSc, RNDr. 1987, summa cum laude) and engineering at the Osaka Second, MRM department monitors all positions against the limit. University, Japan (PhD, 1994). Briefly worked in The limit is a maximum VaR which the FX department may hold nanotechnology as HI-VIPS researcher at Hitachi according to the bank management decision. In principle, this Ltd., Tokyo, Japan. From 1996, Karel has been decision should be approved at the highest level by the board. Let’s involved in financial markets as risk management consider that the bank has allocated to the FX department a limit professional, first with ING Bank Prague (1996- of HKD 2 million. Then the position which results in VaR of HKD 1.3 1997), later as Director, Head of Market Risk in million is within the mandate of the FX trading department. ING Barings Tokyo (till 2003) and in ING Bank Hong Kong (2003- 2005). From April 2005, Karel is Director, Head of Corporate Third, the controlling and managing function of MRM is executed Strategy with Mizuho Securities Asia Ltd. in Hong Kong. Member of when a large position is spotted; e.g. a position in EUR of equivalent Hong Kong Chapter PRIMA Steering Commitee, Hong Kong Institute HKD 200 million is not acceptable, in fact the resulting VaR of HKD of Directors and New Academy of Sciences. Karel is fluent in 2.6 million would create an excess of 30 % over the limit of HKD Japanese, English and Czech.

The Bottomline 02 Prestigious Certified Management Accountants of Canada, FCMA award is given to CIMA member Dr. Anthony CW Tam ACMA

CIMA member Dr. Anthony Tam ACMA is only the third person manuals on Cost & Management Accounting. in Hong Kong to ever be awarded the Certified Management Accountants of Canada (CMA) FCMA award. The CMA Fellow Speaking to Dr Tam his career seems to move in phases of ten award cannot be applied for in the usual manner and is awarded years and at the time of our meeting, he was preparing for a at the discretion of the institute for services to accountancy and move to Department of Business Administration, IVE (Chai Wan) the institute. as the Head of the department. His final career move is at the moment planned to be move into horticulture. Walking into his Dr. Tam started his professional life as a pharmacist in Canada. office was like walking into a greenhouse. After speaking to friends he decided to make the switch If the condition of the plants in his office to accountancy and after completing his training moved to was any guide, I am sure his move into the Macau in 1983 to work at the University of Macau, where as cultivation of plants will be very successful. an Associate Professor he taught Accounting. After ten years at the University of Macau Dr. Tam moved to The Hong Kong Congratulations to Dr. Tam and our best Polytechnic University where his career shifted away from wishes for your continued success! teaching into the sphere of developing and implementing a wide variety of accounting courses. Dr Tam also has many published articles and conference papers to his credit including two study

Hong Kong divisional council Communications committee 2005/2006 Chairman President Ho King Lam, Kingston FCMA Law Yu Kwan, Albert FCMA Vice Chairperson Deputy President Jayne Christie ACMA S Y Choi FCMA Committee Members Vice President Law Yu Kwan, Albert FCMA Ho King Lam, Kingston FCMA Chan Nap Tuck, Anthony FCMA Yau Shiu Wing, Joseph FCMA CIMA Council Member, Area 15 Yeung Chun Pong, Paul FCMA Chan Kai Chi, Kenneth FCMA Kee Ying Sum, Sam ACMA

Immediate Past President By invitation Yeung Chun Pong, Paul FCMA Agatha Fraser

Treasurer Editor Ho King Lam, Kingston FCMA Margarret Fidow ACMA

Council Members Staff contributors Chan Yui Lung, Michael FCMA Chan Kin Lok, Paul FCMA Juliee PL Tan Lee Shiu Chuen, Andy FCMA Vivian Fung Pun Kwok Wing, Jimmy FCMA Cola Man Yau Shiu Wing, Joseph FCMA Tsang Fan Fung, Andy FCMA Design and production Cheung Wan Yin, Leo ACMA Cheng Sau Ying, Irene ACMA Designer: Cyril C. So Pang Cheung Hing, Alex ACMA Stroedes & Aavar Advertising Limited Lee Kwok Ming, Don ACMA Tel: 852 2861 0101 Fax: 852 2866 6103 URL: www.aavar.com Lam Yuen May, Amy ACMA

The Bottomline 03 CIMA Annual Dinner Special

Divisional Council members together with CIMA International President gave a toast to all attendees for a successful and rewarding new year.

total of 110 members, students and guests enjoyed a convivial evening of fellowship at the Division’s Annual Dinner and Award Presentation Ceremony, held at The Hong Kong Bankers Club in The Landmark on 14 A November 2005. Among the distinguished guests were Dr Raymond Wu, Chairman of HK Professional Consultants; Honorary Ms Mandy Tam, member of the Legislative Council; Mr Howard Sou, Chief Curriculum Development Officer, Government of the HKSAR; Ms Lee Yok Mr Francis Chiu Pak Sum FCMA receiving his Fellow membership Man, Division Chief, Coordination Department; and Ms Lin Qiong, certificate from CIMA International President. Secretary of Liaison Office of The Central People’s Government in the HKSAR.

The guest of honour, CIMA’s International President, Mr Ian Christison, was welcomed to Hong Kong and invited to address the assembly by the Division’s President, Mr Albert Law.

In his address, Mr Christison stated that the role of CIMA is to develop excellence in the training of accountants for a role in business. CIMA is the institute, not just for those with a UK base but internationally, with the greatest focus on the needs of business and the supply of accountants to it. Associate members posing with Mr Ian Christison (Center) Mr Christison presented CIMA membership and passed finalist certificates, while Mr SY Choi presented the Advanced Diploma in Management Accounting and Certificate in Business Accounting. ‘Best Paper Awards’ presented by Mr Albert Law, and ‘Past President Award’ presented by Mr Kenneth Chan, were bestowed to a total of 32 students and new members. The recipients were warmly congratulated by all present.

Group photo of CIMA staff with the leadership

The Bottomline 04 CIMA Annual Dinner Special

During the course of an excellent dinner, entertainment was provided by music from Nat’s Production House and guests took part in the Lucky Draw. After the meal, some were even tempted to take to the dance floor.

Thanks are due to all of the guests for their attendance and for participating in the lucky draw. We are also extremely grateful to those who sponsored or made donations for the lucky draw and table prize.

Thanks also goes to the divisional office staff for their hard work in organising this successful event, with special mention to Vivian and Helen, for their admirable performance and contribution as Masters of Ceremony’s for the evening. John Howes ACMA

Mr Christison in a group photo with the passed Mr S Y Choi in a group photo with the Advanced finalist certificate recipients. Diploma in Management Accounting recipients.

Mr Albert Law in a group photo with the Mr S Y Choi in a group photo with the Best Paper Awards recipients. Certificate in Business Accounting recipients.

Ms Choi Li Chun Avy ACMA receiving the Past Masters of Ceremony, Ms Helen Lam (L), and President Award from Mr Kenneth Chan. Ms Vivian Fung (R)

The Bottomline 05 CIMA Annual Dinner Special

Great Time for Lucky Draw

The Bottomline 06 CIMA Annual Dinner Special

To the dance floor

Christmas fellowship party

his year’s CIMA Christmas Fellowship Party was held at The Hong Kong Golf Club on 23 December 2005 (Friday). It is my honour to be invited. T After informal discussion over cocktails, the party started at 1930. With around 30 participants the atmosphere was relaxed and a great opportunity to get to know our fellow members.

Then Mr. Jimmy Pun, Organizing Chairman and Mr. Albert Law, President of CIMA Hong Kong Division welcomed participants and Mr. Kenneth Chan shared his valuable experience in communicating with CIMA concerning the development of the Hong Kong Office.

About 10:00 p.m., all the participants enjoyed the delicious BBQ dinner and received special Belgium chocolates as Christmas gifts in appreciation for the members’ commitment towards the division activities while other participants received Japanese cookies for their kind attendance.

I sincerely hope that there will be more gatherings held with increased member participation.

See you next year. Merry Christmas and Happy New Year.

Tse, Yiu Kei Hap ACMA

The Bottomline 07 Forum on Issues affecting Corporate Performance

of Hong Kong Venture Capital and Private Equity Association), Dr. Agatha Fraser (columnist with Hong Kong Economic Journal Monthly), Martin Sarbine (Chairman of Somerly Limited), John Hayes (Senior Principal Consultant of Oracle Consulting Services Hong Kong), Melissa Brown (Executive Director of The Association of Sustainable & Responsible Investment in Asia) and Michael Lai (Principal of Internal Audit Services, KPMG HK).

The speakers, representing HIGH PROFILE members of the business community, financial, accounting or legal professions, shed light on clues to successful businesses in connection with a range of topics, such as: recent developments in business governance; challenges for Hong Kong manufacturers operating in the Pearl Delta region; corporate performance assessment from an investor’s point of view; mergers ollowing the success of the the Executive Council, and a host of other and acquisitions; enhancing corporate 2004 forum on ‘Enterprise distinguished business and professional management with information technology; Governance’, CIMA Hong Kong leaders. They shared their views on topics factors affecting venture capital investment Division organized another of common interest and success stories decisions; risk management; factors eyes-catching forum on ‘Issues in corporate performance. The list of F affecting crediting ratings and investment affecting Corporate Performance’ on 5 distinguished speakers included Albert Law assessment for PRC projects, etc. Panel December 2005 in association with METRO (President of CIMA), Moses Cheng (Senior discussion sessions in between were FINANCE, and with the Securities and Partner of P.C. Woo & Co), Water Cheung rewarded with insightful comments from Futures Commission as special supporting (Head of DBS Global Financial Markets prominent guest speakers on controversial organization. Some 200 professionals (Greater China)), Melissa Brown (Executive issues – such as that by David Webb in participated in the forum at the Four Director of The Association of Sustainable which he defined ‘anorexic companies’ and Seasons Grand Ballroom of the newly & Responsible Investment in Asia), Prof. ‘obese companies’ - while the inspiring opened Four Seasons Hotel, Hong Kong. Amy Lau (Chair of Accounting, Faculty of speech of Mr. C.Y. Leung on enterprises This was in accordance with CIMA’s Business and Economics, HKU), John Bailey human resources development particularly ongoing commitment to the training of (Managing Director of Standard & Poor’s), spiced up the audiences. Participants’ professionals in business on corporate Patrick Yeung (Managing Director of Asian general responses to the forum were financial management and strategic Capital (Corporate Finance) Limited), S.Y. overwhelming, and they hoped that similar decision-making. Choi (Deputy President of CIMA Hong forum on practical topics be organised by Kong), web analyst David Webb, Karl Lung CIMA Hong Kong Division again sometime This was in line with CIMA’s commitment to (President of The Hong Kong Society of in 2006. the training of professional ACCOUNTANTS Financial Analysts Ltd.), Joseph Lai (former

in business. The forum featured keynote President of Hong Kong Institute of Certified Alex Pang ACMA speaker Mr. Leung Chun-ying, convener of Public Accountants), K. O. Chia (Chairman

The Bottomline 08 Forum on Issues affecting Corporate Performance

The Bottomline 09 CPD Update / Supporting Events

The new CPD scheme CIMA Professional Development, the new CPD scheme The CPD planner for members, came into effect on 1 January 2006. The scheme is applicable to all members and requires you to The CPD Planner is one of these new formalise your professional development following the resources and provides an excellent CIMA Professional Development Cycle. Throughout 2005 we starting point for planning your communicated the details of the new scheme which will very professional development in 2006. much be ‘business as usual’ for most of you, although there Using your role as the basis, you can is now a formal requirement for you to reflect upon and assess your development requirements, evaluate your development activities as you record them. We choose activities from the ‘ideas believe that by doing so you will gain greater benefit from generator’ and create an action plan. your development activities which will help you to maintain The outcomes of your activities can then and demonstrate your professional competence and ethical be assessed and recorded within the awareness. tool as a development record, which can be submitted to CIMA if you are The CPD solutions selected as part of the annual monitoring programme. The CPD Planner also To support you in your professional development CIMA has developed includes links to other CPD Solutions a range of products and services, CPD Solutions, which includes four ensuring you can make full use of the innovative new online products. These four online resources are freely wide range of resources available to you available to all CIMA members as part of your CIMA membership for CPD. subscription. You can access them now by logging on to the My CIMA area of the website or by visiting www.cimacpdsolutions.com.

Presidential engagement 2005

13 Oct Scholarship and Bursary Awards Presentations 2004-5, the Open University of Hong Kong

14 Oct CPA Gala Dinner by Hong Kong Institute of Certified Public Accountants (HKICPA)

15 Nov Ice-breaking gathering & official commencement of HKUSTSU Mentoring Program 2005, The Hong Kong University of Science and Technology, Students’ Union

21 Nov CGA-Hong Kong Annual Dinner, Canadian Certified General Accountants Association of Hong Kong

25 Nov ‘Best with the best’ program, Metro Broadcast Corporation Limited

1 Dec Economic Summit 2006 jointly organised by Metro Finance and the HK Economic Journal

3 Dec Eleventh Congregation of The Hong Kong Polytechnic University, The Hong Kong Polytechnic University

Future Events 2006

Jan/Feb/Mar Monthly Networking Lunch, jointly organised with CMA Canada – Hong Kong Branch at The Chinese Club, Central, Hong Kong on the second Wednesday of each month

25 Feb Green Power Hike for a Green Future

Mar Family Outing

The Bottomline 10 CBA test dates Editor’s Note

CIMA students taking the CBA exam should enrol with the British Council I hope that you will all be able to take a well- directly. For more details, please contact Ms Flora Ma at earned break for Chinese New Year. From where 2913 5177 or 2913 5171 I sit this looks like a very busy year to come. Let’s hope that bodes well for Hong Kong as a whole, Test Dates in 2006: and for each and every one of us. 23 January / 20 February / 20 March In between all those other activities both in and out of the workplace keep an ‘eye open’ for Book-purchasing service news of CIMA in the classified section of the SCMP. Our Forum generated much interest from CIMA Official Study Systems are the only text written and endorsed by the our SCMP attendees. CIMA Faculty. As writers of the syllabus and the exams, nobody is better qualified to explain how to pass.

Authoritative coverage of the syllabus Includes May 2005 Q&As

CIMA Official Revision Cards: Congratulations Concise and compact to provide succinct but complete coverage of all the major points Fellows Nigel Cumberland CIMA Exam Practice Kits: So Wah Sum Conrad Practice applying and displaying knowledge so CIMA examiners can award you marks Associates Chang Kwok Chau CIMA Hong Kong Division Lau Chin Cheung Suites 1414-1415, Ng Wai Cheong, Artie 14th Floor Jardine House, Ng Yiu Hung Central, Hong Kong Sin Ka Kay, Katrina T +852 2511 2003 F +852 2507 4701 James Johnson E [email protected]

Welcome aboard Welcome new students Happy Lunar New Year and “Kung Hei Fat Choy”!! I am a new starter in CIMA Hong Kong division, my name is Cola. It’s my pleasure to take this chance to say a warm hello to Chan Wai Yan our respective members and students. Let me introduce Chau Chan Hoa, Shirley myself first, I am a BA (Hons) in Business Information Chu Fung Ming, Cecilia Technology graduate. I have worked in Disneyland for a Chun Shiu On few months before I graduated. In my past career, I learnt Ho Kee Cheung, Louis to make people feel happy and provide quality service. I will Ho Man Chun, Alson try my very best to bring those experience to our members and students. In Keung Siu Ming CIMA, I am an assistant administrative officer. My main duty is to provide Kwok Shing, Stephen efficient and quality service for students and members in Hong Kong, Leung Hon administer daily operations, to help brand promotion and to increase Leung Kai Yiu student recruitment. Lo Chung Hin Tang Yiu Kay Everyone has New Year resolution. What is yours? Mine is to put my Yip Man Chi biggest effort to contribute to the growth of CIMA in Hong Kong. Also, Yu Yat Fung I’d like to have a happy working relationship with both internal and Yu Yee Sin, Alice external customers. I really appreciate the experience I gain from working Yu Man Ki, Joanna in CIMA. It has only been a short period of time since I joined CIMA, but I Wong Man Bun, Benjamin was lucky enough to join the two successful events - Annual Dinner cum Wong May Fung CIMA Certificate and Award Presentation Ceremony on November 14 and Wong Tak Kai, Chris Issues affecting Corporate Performance on December 5. I met so many Wong Wang Hong people and made some new friends. It is impressing that all the colleagues, members and students are so nice to me.

The Bottomline 11