NEW F8 EXAMINER - WHY STUDENTS FAIL & HOW TO IMPROVE?

Excerpts: I specialise in Audit (F8, P7), Corporate Relations (P1) and Corporate Strategy (P3) papers. With deep interests in ACCA students' future and success, the the following F8 article is meticulously prepared for your close scrutiny and post-mortem on past students weaknesses. I sincerely hope this is constructive and CHANGEstudents study techniques!

NEW F8 EXAMINER
With effect from June 2010 Pami Bahl will be the new F8 examiner. She has jointly produced the December 2009 exam, hence a ‘NEW’ old look to F8 examination style.

To recap, the introduction of the new syllabus in December 2007 presented the opportunity to amend the style of the ‘old’ 2.6 examination, to allow for the longer scenario and to use reading time more effectively. Originally decided to combine this longer form question with the shorter knowledge questions to ensure that the essential audit knowledge was being examined broadly enough. Pami Bahl testified that there is no plan to change from that format.

Okay, lets cut the chase and analyse F8 students weaknesses.

7 SINS OF F8 EXAM ATTEMPTS: WHY STUDENTS FAIL?

Weakness 01: Confusion on audit procedures
I give 2 examples:
Example A:
Section A of 30% as the bulk testing on 2 distinct audit procedures namely tests of control and substantive procedures. Vast majority of students have the confusion is between tests of control and substantive procedures. Thus incorrect answers in not providing the ‘correct’ type ofaudit test within an answer. Please note this is an area that will be examined very regularly.

Example B:
Many students could identify inherent risks present within the scenario, but most students were unable to explain the EFFECT OF RISK on the audit approach.

What is shocking is an alarming number of students interpret the AUDIT PLANNING (done at the beginning of audit process) question and proceed to describe a full going concern review (done at the end of audit process)!

More worryingly, many students stated that the auditor needs to make ADJUSTMENTS to the financial statements.

Gosh! Auditors HAVEN’T even start their audit process yet, students recommend make adjustments? Based on what? There is no working papers yet!

(for more information Audit Risks-based approach (planning) visit:
http://www.accaglobal.com/pubs/students/publications/student_accountant/archive/sa_may08_pine1.pdf )

Weakness 02 : Confusion on audit process
Going concern audit with repeating audit work on the CURRENT financial statements; this is not the case – going concern relates to the FUTURE.

Weakness 03: Confusion of what is Audit Reports
Audit reports have always proved to be difficult for candidates. More understanding is needed between the different types of reports and when these will be used, report

Students lack understanding on how to apply appropriate qualification wordings with specific emphasis on the difference between uncertainty and disagreement

Weakness 04: Confusion between Analytical Substantive Procedures and Substantive Procedures

Worse yet, as mentioned above, there is main confusion over the difference between tests of controls and substantive procedures. Failure to discriminate between the two types of tests and provided lists containing both effectively will sink the entire question.

This is a surprise in that students knowledge of analytical procedures was relatively weak. candidates had difficulty carrying out basic analytical procedures on financial information.

Weakness 05: Ignoring the case study altogether
common misunderstanding and misinterpretation in case study scenarios such as answers. Please note the case study is a GOLD MINE of information. Pami Bahl mentioned to READ (& understand the facts) the case study. Students should see:
(i) Company has good profits and turnover

And yet

(ii) The management mentioned that this is a difficult year.

Clearly this is an inconsistency, thus Analytical Procedure is appropriate measure rather than Tests of Controls.


Weakness 06: Confusion on question requirements and giving ‘tangent’ answers
Students merely answering a ‘related question’. For example, when a decision is needed on going concern, candidates must have a good understanding of the potential impacts on the audit report and the company.

For example:
The question asked what is the impact on audit report pertaining to Going Concern issue.

Students answer the need to
- Read minutes to meetings
- confirm the directors’ view on going concern
- review interim financial statements
while the above procedures are valid but students still have not answer the “IMPACT” on Audit Report i.e. what are the going concern issues and WHY it affects the Audit report.

Clearly, students lack understanding of exam question requirements. Merely writing what they know only guarantees a low marks.

Weakness 07: Poor practical industrial knowledge
Many students were unable to suggest suitable analytical procedures and offered a variety of SPURIOUS (unrelated) answers

For example:
Do students know that Managers are NOT paid overtime? They are at the senior executive level. So its is wrong to perform Analytical Review to link:
(i) high overtime claims to
(ii) management’ salaries. The overtime claims relate to general factory workers of clocking in procedures.

Neither is this Analytical Procedure accurate:
(i) benchmarking sales personnel salaries to
(ii) industry average

Clearly, sales personnel performance varies individually, thus their salaries PLUS commission varies by WIDE MARGINS!

Care must be taken in reading and understanding the scenario.

HOW TO STUDY F8?

Rule #1: Understand the knowledge.
Students have good knowledge of ISAs inside out – but lacking in what an audit is and how it is carried out. Knowledge will be tested throughout the examination (most notably in question 2).

Some lists, such as assertions, do need to be memorised, but candidates DO NOT need to know which specific ISA these come from. It is much more important in this exam to know why things are there (as in the assertions) rather than to remember the specific paragraph of the ISA they come from.

Rule #2: Understand the REQUIREMENT VERBS
Different approach to questions that have “list out” and “explain”.


Rule #3: Understand the applications to case studies are PARAMOUNT
Knowledge has to be applied to many of the scenarios in the audit and assurance examination. Again, the requirement verb will help, as‘explain’ and ‘discuss’ are trying to elicit more information from the candidate.

For example:
(i) “Application” means finding the relevant points from the scenario
(ii) “Explaining” means the relevance of those points in the answer.

Please read the examiner’s article on this subject from the April 2008 student accountant:

http://www.accaglobal.com/pubs/students/publications/student_accountant/archive/sa_apr08_lewin.pdf

HOW TO IMPROVE F8 PERFORMANCE?
STEP 1: BY GOLLY, PLEASE PLAN BEFORE YOU SPEW OUT THE ANSWERS
Definitely worth spending a few minutes planning the answer.

(i) This is particularly true of question 1, where there is a substantial scenario to read.

(ii) Use the requirement verbs intelligently to visualise the answer –‘explain’ with a scenario means two marks per point, one for the point in the scenario and one to show why the point is relevant. Say, 12 mark question therefore needs up to six full points to obtain full marks.

(iii) Candidates should make sure they read the scenario properly and apply it to make sure they pick up the required number of points.

I recommend that your plan can be WRITTEN FORMALLY on the answer book, jotted down on the question paper or even be a list of points in your head – the important thing is to plan in the method that best suits you.

Step 2: By JOLLY, please think!
No intention to be cheeky here. I am serious! Students tend to ‘vomit’ out textbook, lecture notes materials!

Please try to think to make sure the reason for each point being relevant is clear. In other words, just step back a little from the plan and make sure you can explain the points – or at least prioritize them into some form of order so that the ‘best’ ones are given first. This will maximise your chances of obtaining marks in the examination.

Step 3: By Dolly, you need to practice writing out the planned answer in full
Unfortunately, too many skip my tests and assignments candidates, thus poorly equipped with too little exam practice before entering the exam hall.

You can NEVER learn how to swim, if you don’t practice,
You can NEVER learn how to drive, if you don’t practice,
You can NEVER learn how to cook, if you don’t practice,
You can NEVER learn how to pass, if you don’t practice F8!

MY OFFER
Attend my class in Kasturi School of Accountancy (Kuala Lumpur) to learn:
i) Avoid 7 deadly sins in F8
ii) Practice exam techniques
iii) Hopefully, as many testified they did, enjoy learning in my class

Hurry, place is not limited but time is!

In other words, learn Pami Bahl examination style and pass. Understand this lady’s forte and why her accounting experience in Price Waterhouse, Coopers &Lybrand, also as a freelance lecturer has a distinct specific style in testing F8 candidates.

How to register?
Visit : http://www.ksacitycampus.com/
- for time table
- for fees
- for location map

Useful articles:
1. Verbs in Questions:
http://www.accaglobal.com/pubs/students/publications/student_accountant/archive/sa_apr08_lewin.pdf

2. Audit Planning:
http://www.accaglobal.com/pubs/students/publications/student_accountant/archive/sa_may08_pine1.pdf

Best wishes.
Marcus Ong – Senior Lecturer

BEST WISHES Over Your Exam Results

Motivating and maximising the potential of every
ACCA student in Kasturi College International.


Results are out today:
= be courageous
= be mature
= be rational
= be a "wei Ji" (mandarin) every crisis there is an opportunity. Seek OPPORTUNITIES out of problems. Change your strategy in studies, change lecturers & college (if you must) and NEVER NEVER QUIT.

You know how it is...students know they should study, but they don't hard enough or got the wrong study techniques.

Why's that?
1. Well, you wouldn't get into a taxi unless you knew your destination.....
2. Equally, you wouldn't run a race unless you knew where the finish was!

------ "What's the point of working hard at school unless you know why?"------
------ "Let's face it, nobody does anything unless there's a reason WHY!"------

The life-changing stuff we do inspires and motivates students to find their reason 'WHY'. It's called 'The Big Picture'!

"Students don't want education, they just want the results they get from it. As an ACCA Lecturer of more than 13 years, my mission is to get you to want BOTH!"
Successful students is YOU if:

1.Are quietly 'getting on'. Yes, you needn't be the most popular in class but be popularly known to ask and probe your classmates on technical studies difficulties.

2.Get better exam results, which Kasturi College International has a very competent team of lecturers like:

* Andrew Pang (F5, F9, P4 & P5),
* Dr Parminder (P1 & P3),
* Tax practitioner expert Alan Yeo (P6),
* Marcus (F8, P1, P3, P7),
* Sanjeetha (Lawyer by discipline for F4)

* I think the most experience and si-fu (master) of Consol. Accounts - Keith Farmer (F7 & P2).

We have combined experience in "specifically" teaching ACCA
for over 100 years! By that standard that is the the most experience team in MALAYSIA!

3.Have a greater sense of urgency. Time is money, there is little time to waste for its your future at risk!

4.With support from both lecturers or (enduring) parents, equipped yourself with vital qualities of discipline, industriousness and perseverance.

5.Ask more questions and listen more attentively in class which is only possible if you are in smallish class.

6.Make better judgements about campus life, social life, personal relationship life (yes, boyfriend & girlfriend stuff) i.e. KNOWING how to balance Life and Student responsibility as an ACCA under-graduate.

7.Statistics from ACCA has shown that re-sit students have a HIGHER fail rate in their next exam attempt compared to first timer. Lecturers in Kasturi College International are renown for helping these students segment and they PASS! Naturally, if you can help the more challenging segment of students to pass, the first-timer students will benefit even more immensely as this means they can score high marks. High marks give you a "Margin of safety" (Warren Buffet, 2001) and builds stronger foundation to pass the P-Level.


Why don't quit?
=Education provides HIGH INCOME opportunity.
=Education provides better living standards for the job market is NEVER discriminatory over race, nationality but over COMPETENCE & QUALIFICATION!
=Remember the late premier of China, Mr Mao said,

--"It doesn't matter if the cat is black or white, so long as it catches the mice!"--


ACCA success in Kasturi College International offers you a career with international career opportunities - Hong Kong, Melbourne, Shanghai, New York (if you have Oxford Brookes Degree too), London and the list excitingly goes on.

BEST WISHES over your Exam Results.

Marcus Ong - Lecturer

Please visit Kasturi College AT http://www.ksacitycampus.com/ for enquiries on in:
= PETALING JAYA CENTRE
= KUALA LUMPUR CENTRE

OilCorp, Ho Hup & EON Bank: Corporate Governance Works!

- relevant to F8, P1 and P7 and
...not forgetting our uncles & aunties who like to invest in Stock Market.

2 years ago, I have a wonderful time discussing with F8 students in a certain college in Petaling Jaya about the corporate governance dilemma. With Malaysia adopting the UK Combined Code governance, I am of the opinion that its superior to other countries governance particularry the Germans and Japanese.

I recall in that class mentioning that its 'fishy' for OilCorp directors to insist (over) valuation of Plant by RM10million. (See article on http://marcusong88.blogspot.com/2008/08/auditors-appointment-professional.html). Then the directors use Horwath AUditor to pit against the opinions of BTMH Auditors. As an investor, I tend to side the current Auditors - BTMH, as they have ethical advantage of being independent.

Why go against your auditors? Bear in mind, OilCorp Directors have an earlier accounting dispute on valuations. They relented by writing off RM20 million or so from CIS. A blow to shareholders but at least that is true and fair opinion. SHouldn't directors be focused on Corporate Strategy? Rather than accounting disputes?

Something got to cave in, and in this case, very likely the ill-informed sharholders who stayed invested. Worse off are the long term investors.

True enough, after 2 years, the current Directors integrity was really questionable and its lack of competence has noise dived Oilcorp Bhd to state of insolvency with Bursa Malaysia Exchange designating it with a PN17 status. Shares price of 2 years ago was at about RM2.00 pee share and now its at a fraction. Read the following article from the Governance Watchdog CEO. A good background knowledge for F8, P1 and P7 of the ACCA.

Other Companies with questionable governance:

Ho Hup Berhad Berhad
There are other similar OilCorp Bhd poor governance. The latest being Ho Hup Berhad. Information is powerful, ladies and gentlemen. IF you have uncles, aunties, cousins and friends invested in this company, tell them to bail out. The Board of Ho Hup is in a tussle which usually leads to the disadvantage of minority shareholders.

EON Bank Berhad
I will stay away from EON Bank Berhad too. TO recall, Hong Leong Boss, Tan Sri Quek Leng Chan, offered to purchase EON for RM9.42 Billion or RM7.10 per share. EON bank's major shareholders, Rin Kin Mei and Tan Sri Liong, who collectively controls 32% could with another 18.1% other shareholders vote to approve the sales. This means the remaining 49.9% minority shareholders are 'forced' to sell. This includes Primus Pacific Partners which "only" controls 20.2% at purchase cost price of RM9.55 per share is forced to sell too. Now that is unfair!

By the way, have a happy constructive holiday i.e. please do my assignments!


Article by CEO of Minority Shareholder Watchdog Group on Oil Corp Berhad:

Board needs to prevent another accounting issue

BARELY two years after its reported accounting issue, Oilcorp Bhd is once again in the limelight after announcing it had become an affected issuer under PN17 status.

News coverage of this nature has been both astonishing and depressing for shareholders and investors alike.

Financially, the company is in a difficult cash flow situation, which is attributable to its inability to collect outstanding large receivables on time.

On Sept 18, 2009, Oilcorp announced its default on an interest payment of RM1.6mil while two of its independent, non-executive directors resigned.

The situation has raised a myriad of concerns which the board needs to address fast and convincingly in the interest of all stakeholders.

From the time of its reported accounting issue and the delay by the board to publish its annual report for the year ended Dec 31, 2007, it is now perhaps time for the directors to assess the situation clearly and explain exactly what had gone wrong and to restore investor confidence as best they can.

The board’s announcement on Sept 23 does not provide sufficient information regarding the matter.

As at Dec 31, 2008, the group’s receivables stood at RM474.98mil (audited), of which about RM130.34mil was due from Plant Biofuels Corp Sdn Bhd and Optimis Teguh Sdn Bhd.

Oilcorp’s EGM on July 20 obtained shareholders’ approval for the proposed subscription of 2,211,166 new convertible preferred stocks of US$0.0001 each in Renewable Fuel Corp (RFC) at a proposed issue price of US$10 per preferred stock.

This will be be satisfied by conversion of the aggregate debts of about RM80mil, owed by RFC’s two principal subsidiaries, Plant Biofuels and Optimis Teguh.

RFC is expected to make its submission around this year for listing and trading of its shares.

It is not enough for shareholders just to know the progress of RFC’s submission at this juncture. What is required now is for the board to provide information on the status of collectibility of the group’s large receivables outstanding at RM489.68mil (unaudited) since the board’s announcement on Aug 27 of its second-quarterly results ended June 30.

It is worth noting that the share prices had plummeted from the closing price of 31.5 sen on Sept 18 to 19 sen on Sept 24 upon the announcement of the company’s default in loan interest payment, followed by its announcement of PN17 status.

The key word here in Oilcorp’s dilemma as an affected issuer under PN17 status is the need for transparency and accountability for disclosure of material information. This responsibility falls with the board, especially the audit committee.

But how will the audit committee function now when currently there is only one independent, non-executive director on the board after the resignation of its two other independent non-executive directors.

Given Oilcorp’s PN17 status, how soon will the board be able to regularise the company’s financial condition?

Within three months of the first announcement, the board has to announce whether its regularisation plan will result in a significant change in the company’s business direction or policy even though 12 months are given to submit this plan.

The board needs to consider sending out timely information to meet all these expectations. In a PN17 status, it is crucial for shareholders to know what the board is doing to address the problems faced by the company.

The directors would still have to uphold the principles that undergird rules to get things done right. This brings directors clearly to the central tenets of good corporate governance practice.

In fairness to shareholders and stakeholders, the board needs to assure trust, prevent a repeat of another accounting issue and avoid surprises to shareholders and investors.


Source:
● Rita Benoy Bushon, 2010, CEO of the Minority Shareholder Watchdog Group.

Can Malaysia “TIGER” economy catch up? (Part II)

Yes, Malaysian has a 'lost decade' of the 21st century'. Wasteful subsidies, flip-flop government policies, noisy but ineffective opposition political parties, bureacratic federal government are all that scared off investors. These are main concerns to Malaysia's lagging economy.

Stop for a while and think, why would Resort World Berhad invest over RM13 billion in Singapore to build competing Casino? Isn't Singapore currency strong and expensive, with small captive population? A simple answer is Singapore has morphed albeit evolutionarily to become the best place to do business in Asia. NOte they are ranked the 5th least corrupt nation in the World! As for Malaysia, it was 56 in 2009!Worse ranking than gangster land Macau at 43! Or Brunei at 39, Chile at 25.

The emphasis is not how much FDI Malaysia should attract, but how it creates a conducive risk taking business environment for entrepreneurs to thrive.

Re-position mindset to attract Foreign Direct Investments
Malaysia lagged behind in terms of FDI and technological transfer. We may not get the numbers which generates employment, land utilisation and income. Why not break away from the mindset that we need billions of investment dollars?

Create Malaysia as the best place in South Asia to do business by promoting:

1. Inquisitive and risk taking culture in our universities. Imagine how much start up capital you think Google, Facebook, Intel and Motorola need? Was it not ideas that generate business. To be specific, entrepreneurship is about identifying gaps of latent demand neglected by incumbents rivals or to create a new demand as Nokia did in popularising need to have handphones in almost everyone’s pocket or American Express Card of need to pay by credit albeir stylishly and of course Swiss Watch makers with the redundant over-priced wrists band watch (we can see the time on our handphones, right?)

2. Consistent governance and legislation that fair and corruption free. (I think there are already many articles on this. You should read them yourself. They Malaysiakini.com or RPK's creation - http://www.malaysia-today.net/)

3. Immigration laws that encourages hassle free stay in our land. True, we need to be selective to the choice of skilled labour we prefer as did Australia who recently identified skilled workers in healthcare, engineering and mining are much welcome. 200,000 other application deposits are refunded and politely rejected.

4. Promote accountability at State, Federal and Council levels through election. This encourages transparency on how public funds are utilised. Bear in mind that Selangor state is the single largest consumer in the country with expenditure exceeding RM4.1billion (US$1.2billon).

5. Involve the royal family whom we appreciate has been playing the pivotal role of symbol of stability and head of the military. The Yang Dipertuan Agong, being above the court laws, which means His Majesty cannot be tried in court can exercise his judgement and wisdom to investigate, intervene and improve the current governance. Much issues seemed left open like the investigation of Port Klang Free Zone scandal, theft of military weapons and over-collection of tol when Tol Operators like Mulpha Berhad (MCA affliated) company continued to collect tol passed their deadline for 10 whole years. No one at Directors' Senior level or with fiduciary duty to stakeholders was charged, thusfar.

6. Create Business-centric culture. Datuk Musa Hitam said, business is never racists with its indiscriminate desire to please the customers. If Malaysian entrepreneurs are not ambitious besides Air Asia and CIMB, both are true regional players and Petronas the only true Malaysian global player, then why not invite Facebook-type of people to do business in the country? United States has no problems with 30% of its population are migrant professionals. In fact in Silicone Valley, more than 50% of its Information Technology R&D workers are foreigners. Can we offer 200,000 Visa pass to India’s top pharmaceutical and software engineers to stay in our land? Prime Minister Datuk Seri Najib confirmed our worst fear, a brain drain of up to 500,000 skilled Malaysians are stationed overseas. At that rate, we will go from Brain Drain to Brain Dead, in view of our already tinish population.

7. Exploit Malaysia’s own niche of competitivenes. Can we not strategically capitalise on strengths? Malaysia’s connectivity to the Middle East and leadership in Islamic finance puts it in a prime position to attract petro-dollar investments into Asean yet why is Singapore talking about becoming an Islamic finance hub? Singapore is already the region’s leading international financial centre. Does Malaysia need to spend to attract international fund managers? Thailand has a hugely successful auto industry. Shouldn’t Malaysia’s Proton move there?

8. Opposition PKR (Pakatan Rakyat) apparent failure - A Good Thing
The fall outs within the parties actually is a testimony of strong governance. PKR leaders have positive quarrels that forces the coalition to seek solutions and compromises. Issues weren't swept under the carpet. This is an informal culture of 'whistle blowing' system. A superior governance! However, they need to set up Risks committees focusing on implementation strategies. Then investors can see the value of investing in States of greater accountability.

Conclusion
The Japanese emerged as richest nation in Asia after a horrible defeat in World War II. It took them only 50 years to achieve that compared to Americans of 200 years. The key factor is human spirit and determination. Malaysians are smart, highly intelligent and industrious. Can it catch up? The future really is in your own hand.


Sources :
• Bernama, 2010, Malaysians hit as Australia tightens immigration policy
http://www.theedgemalaysia.com/political-news/159310-malaysians-hit-as-australia-tightens-immmigration-policy.html, 08 February

• Datuk Seri Nazir Razak, 2010, Speech in Thailand Management Association Top Talk on Feb 3, 2010.

• Mahani Zainal Abidin , 2010, What political and demographic challenges will face Asia Pacific? http://www.isis.org.my/attachments/559_MZA%20APC%20Sydney%2004Dec09.pdf, visited on 10th February.

• Syed Jaymal Zahiid, 2009, Budget 2010: Easy PR status for skilled expats , http://www.themalaysianinsider.com/index.php/malaysia/41250-easy-pr-status-for-skilled-expats, Oct 23

• The Reuters, 2010, Swatch Profits beat forecast, http://biz.thestar.com.my/news/story.asp?file=/2010/2/10/business/5646983&sec=business, 10th February.

Can Malaysia “TIGER” economy catch up? (Part I)

- Relevant to Professional Level of ACCA. I have consistently encouraged candidates to update themselves on socio-political development that invariably are linked to business-economic sentiments. Since we know “all” P-level papers are either case study based or theory-centric emphasis, to know the current development improves your maturity and approach in exams.

MUCH has been learned from the global financial crisis – capitalism is not infallible, Wall Street is not that clever, integrity is more important than intelligence – are some that come to mind. And lessons will continue for years to come. And so will reaction; central bankers haven’t gotten very far with new rules at all and the world financial architecture remains by and large the same.

Are caucasions or developed countries of the West superior in intellect and governance? The results of mismanaging its sub-primed properties, gambling speculation banking derivatives, twin trade and budget deficits certainly compels resounding answer of NO. The last remnants of colonial mindsets surely died in the global financial crisis. There is no right model of capitalism and neither can any country preach that its way is right.

Post-crisis, there are also far fewer who doubt that the 21st is indeed the Asian century. While major economies tumbled, Asia’s prospects have brightened as its two emerging economic giants – India and China – continued their rapid economic growth unabated and its other countries took the crisis largely in their stride.

Ironic as it sounds China has been capitalism’s saviour with its amazing ability to execute its stimulus package, government spending and bank lending so quickly and effectively. Its current moves to cool its economy is also being effected in a manner alien to any version of capitalism we have seen; perhaps China is not just a variant of capitalism but an alternative model in itself.

It was only 200 years ago that the West, powered by the industrial revolution, dethroned Asia economically. And now as the West continues to grapple under the weight of its past excesses, the world turns to Asia to drive global economic expansion.

Guided by Asian values of prudence and collectivism and by embracing the key pillars of Western wisdom (free-market economics, science and technology, meritocracy, pragmatism, culture of peace, rule of law and education), Asia, with the largest share of the world’s population, will soon return to have the largest share of the world economy. And if China is able to accelerate domestic consumption and improve income disparities, then it will not only become the world’s largest economy but an economic role model too.

Shift in world order
This shift in the world order has begun – the G-20 with better Asian representation has replaced the G-8 as the forum for world economic leadership, Europe’s largest bank HSBC dramatically moved its CEO back to Hong Kong, the world’s largest aluminium group, Russia-based Rusal, chose to list on the Hong Kong stock exchange and Asian firms now own some of the most established automotive brands like Jaguar and Volvo.

How do we in Asean position ourselves in this new global landscape?
Since the Asian financial crisis, Asean has grown briskly. The Asian financial crisis also forced major structural reforms, especially in banking, economic management and corporate governance practices, to bring a new resilience that tested well during the recent global financial crisis. While we can be proud of our significant progress, is it good enough?

In 1991, Asean led the foreign direct investment (FDI) race, pulling in investments of US$13.6bil compared with the BRICs with a paltry US$5.5bil. In 2008, the combination of Brazil, Russia, India and China (BRIC) attracted a mighty US$265bil in investments compared with Asean’s US$60bil. When CFOs assess their investment destinations, size of domestic markets always feature high on their selection criteria.

The contrast in capital market terms is just as glaring. The combined Asean exchanges used to dominate the Asian equity market. In 1996, they accounted for 57% of the Asia ex-Japan index, but by 2009 their share had fallen to barely 16%. Asean’s largest stock exchange, Singapore, has seen its weighting on the same index dwindle to 6.9% in 2009 from 9.5% just in 2004, while China’s rose to 26.4% from 11.3% in the corresponding period.

Seen from a different measure, the combined market capitalisation of Asean’s five largest stock exchanges in 2008 (in Indonesia, Malaysia, the Philippines, Singapore and Thailand) is barely half (US$708bil) that of the Shanghai stock exchange (US$1.43 trillion) alone. When CIOs assess their portfolio allocations, size and share of indices are invariably their starting points.

In my next article, I will explore on how to improve the macro-governance to enhance investors confidence in Malaysia.

Sources :
• Bernama, 2010, Malaysians hit as Australia tightens immigration policy
http://www.theedgemalaysia.com/political-news/159310-malaysians-hit-as-australia-tightens-immmigration-policy.html, 08 February

• Datuk Seri Nazir Razak, 2010, Speech in Thailand Management Association Top Talk on Feb 3, 2010.

• Mahani Zainal Abidin , 2010, What political and demographic challenges will face Asia Pacific? http://www.isis.org.my/attachments/559_MZA%20APC%20Sydney%2004Dec09.pdf, visited on 10th February.

• Syed Jaymal Zahiid, 2009, Budget 2010: Easy PR status for skilled expats , http://www.themalaysianinsider.com/index.php/malaysia/41250-easy-pr-status-for-skilled-expats, Oct 23

• The Reuters, 2010, Swatch Profits beat forecast, http://biz.thestar.com.my/news/story.asp?file=/2010/2/10/business/5646983&sec=business, 10th February.

P1 AB Announcement : Classes is at 1330 to 1930 hours

-relevant to Kasturi's (KL) P1 Candidates

P1 A & P1 B - Classes resumes on:

Sunday, 21 February,2010 at 1330 hours to 1930 hours.

Please note the time.

Have a productive, constructive and intense preparation for ACCA exams holiday. One needs to be Kia-Su and Kia-Si to be relatively ahead of your course mates who likely enjoy holidays.

Best regards
Marcus Ong

P1: Answers for Kasturi Candidates (edited)

-relevant to Kasturi P1 Candidates (ACCA)

ANSWER A
(i) Principles base approach – No specific guides
Audit fees should be disclosed together with Other services – taxes advisory, corporate finance or head hunting services, rendered by external auditors. Disclosures empowers investors to gauge the suitability of ‘combined’ services and judge if EA are truly independent or perceived to be.

Audit partners should be rotated every 3 years to reduce threat of familiarity. Audit committee should recommend and propose if this is appropriate or even to propose replacement of external auditors.



(ii) Principles base approach –specific guides
Combined Codes requires more than 51% of members to be NEDs or iNEDs. 50% members gives rise to deadlock at Board level when there is voting exercise.

iNEDs should form majority members of Remuneration and Appointment Committees to have independent review of overall Board’s performance.

EDs may propose or merely recommend to Committees like Nomination Committee as this leverage on their indepth knowledge and exposure in the industry.

(iii) Principles base approach –specific guides
Clear separation of CEO and Chairman is advocated as best governance practice to enable CEO be independently evaluated by an iNED.

However, company can “Comply or Explain” if there is extenuating circumstance. CEO can be an interim Chairman which means ‘part time’. 3 year period is hardly considered part time.

(iv) Principles base approach –specific guides
A comply and explain guide meaning greater flexibility and at Board’s discretion. They need to balance in :
- not over-disclose information to firm’s detriment as competitors can read its strategy or
- under-disclose as investors deemed it as lacking transparency


(v) Principles base approach – no specific guides
Combined Code is silent on whether executive or non-executive directors can hold too many positions in companies as it means they risk neglecting their fiduciary duties to safeguard and manage companies’ interests due to time constraints.

Nomination Committee can state the length of service an Executive Director is in.
Board can stipulate Key Performance Index putting greater accountability on CEO and EDs.


(vi) Principles base approach –specific guides
The Combined Code states that the directors should maintain a sound system of internal control and, at least annually, conduct a review of the effectiveness of the group's system of internal controls and they should report to the
shareholders that they have done so.
Should include :
• financial controls
• operational controls
• compliance controls
• risk management controls


ANSWER B (I) & (II) BRIEF REPORT

TO : SENIOR MANAGEMENT
FROM : CONSULTANTS
DATE : 10 JUNE 201x
SUBJECTS : RULES BASED AND TWO-TIER BOARD
GOVERNANCE

Purpose of this report is to outlined the implications of
B (I) rules based company
B (II) two-tier board

B (I) Rules based Company – as practiced in USA introduced under Sarbanes-Oxley Governance.
Positive factors:
1. Clear rules that compelled subsidiary to comply.
2. Focused on specific guidelines that minimises ambiguity or subjective interpretations.
3. Greater accountability of Board members, as they need to statutorily declare to their best knowledge, Financial Statements are true and fair. Or else they face criminal charges or imprisonment outcomes.

Negative factors
4. Costly especially for subsidiaries with limited funds or small/medium size. SOX requires compulsorily for all companies to comply without any exception
5. Managers may want to re-consider their career if they want to be in USA working as employee-Executive Directors with imprisonment threat?! Discourage attracting managerial talents.
6. Inflexible as there is NO comply or explain exceptions. Rules based assumed “One size of governance fits all approach”. Overlooks the complexity and dynamic changes across diverse industries. Unreasonable to impose standard governance formula.
7. Mere “box-ticking” approach following rules rather than the “spirit” or main principle for governance.
8. Firm’s culture may not FIT to rules based where firm may take greater risk taking behaviour inconsistent with need for rules based governance approach.
9. Slows decision making process as its compulsory to follow the process of rules based governance. Many requirements to submit reports to different regulatory bodies.

B (II) two –tier board adivse:
Positive impact on subsidiaries:
1. Clear and formal separation between monitors (upper-tier/supervisory board) over lower tier (Managerial board). Co-determination required so that lower tier has greater accountability to upper tier.
2. Capacity to have an effective safeguards over corruption or negligence of lower tier as upper tier acts as independent pressure equivalent to independent auditors role.
3. Two tier accounts for shareholders and also:
i. In japan considers the bankers stakeholders needs
ii. In Europe (Germany & France) considers employees or trade union needs.
iii. A multi-stakeholders approach considering their interests brings out a ‘balanced’ board compared to Anglo-Saxon of glorifying capitalism – namely shareholders are always the Boss!
4. Encourages transparency within Board, as employees take active interests in Board’s strategy and development.

Negative impact:
5. Lacks accountability as upper tier blames lower tier for failure in management and vice versa as lower tier is frustrated over unjust intervention from upper tier.
6. Potential conflicts of interests and corruption as lower tier fails to feed information to upper tier.
7. Slows decision making. Very low risk approach to strategy as employees and bankers unlikely take aggressive expansion strategy that causes redundancies risk or liquidation risks.
8. Supervisory level detached from shareholders become autocratic in leadership, a neglect of shareholders’ interests. Greater risk of agency problem.

Conclusion
We advocate the subsidiaries to comply with principles based governance in UK and its Commonwealth countries that contribute to robust governance.

Yours Faithfully,

COnsultants