Accountant Middle East - April 2013 by CFO Middle East

setting standards in financial auditing & accountancy

40 - 2013

M G

E UA • A N N I V E RS

AR Y

40 YEARS AND COUNTING 73 19

2013

•

M G

E UA

• A N N I V E RS

• A N N I V E RS RY

E UA

2013

•

40 73 19

KP M G

•

73 19

april 2013

KPMG in the UAe hits A Milestone

TAKING CHARGE

IAA new chief Kevin Rafiq outlines his plans to steer the association to the next growth phase

WHAT’S IT GOT TO DO WITH ME?

Why accountants need to be aware of what is happening in the world of money laundering

THE GENDER AGENDA

Business leaders in Middle East champion calls to support diversity on corporate boards

PUBLICATION LICENSED BY IMPZ

tes ay rou s and Gatew ster degree le a a l M i va b for now a educed ’s A B r M P350 tions for GB BP600. Op G from le for CA . b availa

We are the new AIG

CIMA qualification

from1 paper onwards.

• Improve your employability with the right skills for business and finance. • CIMA is 100% present within the top 100 global brands *. • In addition get the Chartered Global Management Accountant ‘CGMA’ designation and also gain direct membership to CPA Australia.

Bring on tomorrow www.aig.com

*Established by Interbrands 2012

AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our website at www.aig.com. Products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Not all products and services are available T. +971 4 4347370 in every jurisdiction, and insurance coverage is governed by actual policy language. Certain products and services may be provided by independent third parties. Insurance products may be distributed through affiliated or unaffiliated entities. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.

editor's audit

Publisher Dominic De Sousa Group COO Nadeem Hood Managing Director Richard Judd richard@cpidubai.com +971 4 440 9126

Life begins at 40 IN 1932, American psychologist Walter Pitkin published a self-help book titled ‘Life Begins at Forty’. Pitkin stated that life is a series of successes and failures, and one must learn from those failures and build on the successes.

EDITORIAL Editor Joyce Njeri joyce@cpidubai.com +971 440 9140

Fast forward to 2013 and this notion resonates well with KPMG in the UAE, as the tax, audit and advisory firm hits a significant milestone by marking the 40th anniversary of its founding in the Emirates.

Contributor Shane Phillips ADVERTISING Commercial Director Chris Stevenson chris@cpidubai.com +971 4 440 9138 PRODuCTION & CIRCuLATION Production Manager James P Tharian james@cpidubai.com +971 4 440 9146 Database and Circulation Manager Rajeesh M rajeesh@cpidubai.com +971 4 440 9147 DESIGN Head of Design Fahed Sabbagh fahed@cpidubai.com +971 4 440 9148 Graphic Designer Glenn Roxas glenn@cpidubai.com Photographers Jay Colina Kader Pattambi DIGITAL SERVICES Digital Services Manager Tristan Troy Maagma Web Developer Abey Mascreen online@cpidubai.com +971 4 440 9100 Published by

As the region experiences growth particularly in the oil and gas, manufacturing and telecoms services, financial consultancy businesses continue to face intense pressure due to stiff competition and cutthroat pricing deals.

Many entities have been forced to rescale operations, and as KPMG turns 40, the accounting giant sees these challenges as an opportunity to review its business operations in order to reposition itself and excel in the dynamic and competitive marketplace.

Accountant Middle East feels honoured to be associated with KPMG as it marks this significant milestone, and it is due to this that this month’s edition pays tribute to the audit firm, with exclusive interviews with top advisors from the firm addressing a range of issues including forensic auditing, valuations, cross-border mergers and acquisitions, Shari’a finance and tax restructuring. To set the pace for us, our cover personality is KPMG’s Head of Advisory and Markets (UAE & Oman) Ian Gomes, who shares with us the firm's response to these business challenges and also addresses the future of financial consultancy in the region.

On other matters, we look at how money launderers and terrorist financiers are continuously looking for new methods of disguising their funds, by exploiting weaknesses in AML systems and controls. This is an article not to be missed by accountants, auditors and CFOs, as it tackles the critical question; Money Laundering, Terrorist Financing and Sanctions – What’s it got to do with me?

Speaking of auditors, there’s a new man at the helm of UAE’s Internal Audit Association. We bring you an exclusive interview with the CEO Kevin Rafiq, as he outlines his plans to steer the association to the next growth phase. Have a good read.

Office 804 Grosvenor Business Tower, TECOM PO Box 13700 Dubai, UAE

Joyce Njeri Editor, Accountant Middle East

Tel: +971 4 440 9100 Fax: +971 4 447 2409

Printed by

setting standards in financial auditing & accountancy

Talk to us:

april 2013

Printwell Printing Press

E-mail: joyce@cpidubai.com

40 73 19

- 2013

•

Facebook: www.facebook.com/AccountancyME

M G E UA • A N N I V E RS

AR Y

40 YEARS AND COUNTING 73 19

2013

•

M G

E UA

LinkedIn group: Accountant Middle East

• A N N I V E RS

Twitter: @AccountancyME

• A N N I V E RS

2013

E UA

40 73 19

KP M G

•

© Copyright 2013 CPI All rights reserved While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.

KPMG in the UAe hits A Milestone

TAKING CHARGE

IAA new chief Kevin Rafiq outlines his plans to steer the association to the next growth phase

WHAT’S IT GOT TO DO WITH ME?

Why accountants need to be aware of what is happening in the world of money laundering

THE GENDER AGENDA

Business leaders in Middle East champion calls to support diversity on corporate boards

PUBLICATION LICENSED BY IMPZ

Subscribe now

www.accountancyme.com 3

Contents APRIL 2013

Main Features

Women in FinanCe:

The gender agenda – Business leaders in the Middle East champion calls, set targets and quotas to support diversity on corporate boards.

Cover story:

Corporate re-engineering – Ian Gomes, KPMG’s Head of Advisory and Markets, UAE & Oman, addresses the future of financial consultancy in the region.

Personality & PraCtiCe:

Taking charge – UAE Internal Audit Association’s new CEO Kevin Rafiq outlines his ambitious plans to steer the association to the next growth phase.

April 2013

iFrs sPeCial:

audit standards:

GCCAAO in landmark deal with ICAEW – Agreement to see development of world-class monitoring system and support creation of a framework to monitor application of international audit standards in GCC states.

tax restruCturing in sWF:

talent arChiteCts:

shari’a ComPlianCe in PraCtiCe :

Nilesh Ashar discusses the concept of sovereign immunity from taxes available in key investment markets

Reyana Menzel, KPMG's Head of HR and Learning on the unique programmes the firm has initiated in recent past to stay ahead of the curve... Muhammad Tariq gives a practitioner’s perspective to Islamic finance

industry aPPointments:

Revolving door – Find out the latest movement of professionals between roles, companies as well as new industry hires.

Is your company to rogue 3 - 201vulnerable PMfor 973 to watchKout trading? The red1flags G

Glass half full? –Middle East CFOs are the most optimistic globally, Deloitte’s new market study shows.

rogue roulette :

CFo survey:

A look at how GCC SWFs have evolved since the onset of the 2008/2009 global financial crisis

• A N N I V E RS

Wealth Wire :

E UA

IFRS finally comes to the region – The appointment of Dr Abdulrahman Al Humaid as a Trustee of the International Financial Reporting Standards Foundation is a very significant step for the further development of IFRS in the Middle East.

•

Profession Watch

No ordinary business minds – Six of the world’s chartered institutes have launched a new initiative to support, develop and promote the role that Chartered Accountants play throughout the global economy.

Special Reports

neWs & vieWs:

Region’s 40% certified auditors are in UAE – The UAE Internal Audit Association has announced that the country leads the region in the number of auditors who hold Certified Internal Auditors (CIA) certifications.

M G

• A N N I V E RS

neWs & vieWs:

E UA

Current Affairs 6

2013

•

40 73 19

transitions:

Entry of young generation into family-run businesses... made easier

From the Experts 50 money laundering:

What’s it got to do with me? – Matthew Gamble, the Head of Anti-Money Laundering at DFSA, explains why accountants and auditors need to be aware of what is happening in the world of Money Laundering, Sanctions and Terrorist Financing.

CorPorate treasury:

Covenant and control – Will Spinney explains how loan covenants may oblige borrowers to maintain a certain credit quality over the life of a loan.

Interactions 3 editor's audit

News & Views

‘NO ORDINARY BUSINESS MINDS’

SIX OF the world’s chartered institutes have launched a new initiative to support, develop and promote the role that Chartered Accountants play throughout the global economy. To celebrate the launch of Chartered Accountants Worldwide, the six founding bodies have launched ‘No ordinary business minds’. This is a new publication and website featuring Chartered Accountants who hold influential positions around the world as business leaders, decision-makers and trusted advisers and who have enabled businesses, institutions, individuals and communities to achieve their goals. Michael Izza (pictured), ICAEW chief executive, explained: “In a world where there are many different types of accountants and qualifications, demonstrating the value that Chartered Accountants deliver and the highest ethical and quality standards to which they operate is becoming increasingly important." "Chartered Accountants Worldwide will help promote the commitment of our global membership to these standards. By working together, we will also be able to create greater opportunity globally for those seeking to become or develop as Chartered Accountants." Chartered Accountants Worldwide will see the six institutes from Australia, England and Wales, Ireland, New Zealand, Scotland and South Africa demonstrating the value of Chartered Accountants and encouraging more people to consider chartered accountancy when training and when hiring. 6

April 2013

Region’s 40% ceRtified auditoRs in uae THE UAE Internal Audit Association (UAE-IAA), the local body affiliated to the Global Institute of Internal Auditors (IIA-Global), announced that the UAE leads the region in the number of auditors who hold Certified Internal Auditors (CIA) certifications. The UAE accounts for 40 % of the total number of certified auditors in the Middle East or around 1,700 (CIA) auditors working in the country. According to a recent study by the Global Institute of Internal Auditors, the total number of CIA qualified internal auditors in the Middle East is estimated at around 4,112, distributed by countries as follows: Jordan (212), Bahrain (366),

Egypt (386), Lebanon (360), Oman (328), Saudi Arabia (836) and the United Arab Emirates (1,624), including citizens and expatriates. Commenting on this milestone, Abdulqader Obaid Ali (pictured), President of the UAE Internal Audit Association (UAE-IAA), said: “The CIA qualification is the mark of excellence in the internal audit practice in the world, and this prestigious position that the UAE occupies in this field today reflects the Association’s commitment to take this profession to higher levels.”

STATS FACT:

1,700

ToTal number of acTive cerTified inTernal audiTors working in The uae

IMA conference set for June 22-26 PROFESSIONALS ATTENDING the Institute of Management Accountants (IMA) 94th Annual Conference & Exposition, taking place June 22-26 in New Orleans, USA, will have the opportunity to hear and learn from worldrenowned speakers who have successfully traversed the front lines of ethical challenges. With the increased scrutiny facing the finance profession today, the time has never been better for a close

look at the ethical challenges facing the profession. Conference attendees will earn more than 28 NASBAapproved continuing professional education (CPE) credits by attending learning sessions led by speakers representing various organisations, industries, academic institutions and government agencies. For more information and to register, visit: http://www.imaconference.org/

News & Views

EcONOMY MINIStRY lAUNchES INvEStMENt pROjEct

emiRates nBd lists Bond on nasdaQ duBai NASDAQ DUBAI has welcomed the listing of a $750 million conventional bond issued by Dubai-based Emirates NBD bank. The listing by one of the region’s leading banking groups further expands Dubai’s role as a major listing venue for fixed income securities. It brings the nominal value of conventional bonds and Sukuk (Islamic bonds) on Dubai exchanges to $19.70 billion. The issue was 3½ times oversubscribed with more than 160 orders received from regional and international investors. Forty seven per cent of the bond was allocated

to MENA based investors, 28% was allocated to investors based in Asia and 25% was allocated to investors based in Europe. In January, the government of Dubai listed a Sukuk and a conventional bond on DFM with a total value of $1.25 billion.

STATS FACT:

THE UAE’s Minister of Economy His Excellency Sultan bin Saeed Al Mansouri (pictured) has inaugurated the ‘Investment Map Project’, an initiative aimed at attracting foreign investment capital and promoting the UAE among international investors. The Minister said the UAE has become a strategic hub for foreign investments and leading international establishments, due to its solid economic fundamentals and wise economic policies that are based on openness, diversity and flexibility. “Today, the UAE enjoys a leading status as a pivotal destination for investments,” Al Mansouri said, adding, “the Investment Map Project will enlighten potential businessmen from around the globe about investment opportunities and to better understand the realities here.” His Excellency said the Ministry of Economy is keen to develop the economic legislative system in the country as it continues to work on putting the final touches on a number of draft laws to enhance UAE business performance; most notably the foreign investment law, corporate, industry and small and medium enterprises, competition and intellectual property rights protection. All these draft laws are in their final stages.

$19.70bn

Current nominal value of Conventional and islamiC bonds on dubai exChanges

Knowledge upgrade MORE THAN 400 professionals in accountancy and finance industry have confirmed participation in the forthcoming OpenThinking event, scheduled to take place on April 6, 2013 at the Dubai Knowledge Village. Dubbed “OpenThinking Day: Knowledge Upgrade”, the forum is sponsored by most of the accounting, auditing and financial associations in partnership with nine Executive-MBA Schools. The presidents of the ACCA Middle East, UAE Accountants & Auditors Association, IMA Middle East, ICAEW Middle East and CFA Emirates Society will be talking at the event about the critical

and recent accounting and financial issues in the Middle East. According to the organisers, more than 60 organisations will be represented at the exhibition. Iyad Mourtada, Managing Director of OpenThinking (pictured) commented; “We are trying to build a platform for auditors, accountants and financial professionals to connect with each other and share knowledge and experiences. It is all about having Open Thinking.”

News & Views

life in tHe fast lane E&Y SIGNS cERtIFIcAtION DEAl

ERNST & YOUNG signed a working agreement with Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) to assist in Shari’a certification of Core Banking Systems (CBS) used by Islamic banks. On the back of this mandate, Ernst & Young is launching its new Advisory Solution, CBS Shari’a Assessment, to assist international and regional technology firms. The agreement was signed by AAOIFI’s Secretary General Dr. Khaled Al Fakih and Essa Al-Jowder, Office Managing Partner, Ernst & Young Bahrain. The certification programme will assess CBS services to ensure that they conform to the approved global Shari'a and accounting standards. Ashar Nazim (pictured), Partner and Head of Global Islamic Banking Centre at Ernst & Young said: “In a technology driven world, banking products and processes have to be mapped on to the core banking system which is invariably based on conventional foundations with a patchwork of Shari'a features. The issue of sub-optimal IT solutions can be an obstacle to the profitability of Islamic banks. Uncertified IT solutions pose a serious Shari’a non-compliance risk which the boards of these banks are no longer willing to tolerate.” AAOIFI has issued 88 standards in the areas of Shari’a, accounting, auditing, ethics, and governance for international Islamic finance. Its standards are currently followed by several leading Islamic financial institutions across the world. This has helped introduce a progressive degree of harmonisation of international Islamic finance practices. 8

April 2013

FIRST GULF Bank (FGB) has launched the first-ever Ferrari credit card in the Middle East and Africa. In partnership with Visa, two categories of the new credit card are available to customers – Signature and Infinite – both offering a variety of privileges and services to provide Ferrari fans with access to a world of Ferrari experiences. For the first time in the UAE, the Ferrari Signature Credit Card provides its cardholders with an opportunity to win through monthly, semiannual and annual draws, which will be held under the supervision of the economic department. These include exclusive Ferrari experiences with a GT car on a weekend of their choice, a chance to attend Ferrari Challenge Races in Europe and/ or win a luxurious stay in Rome with an exclusive invitation to visit the Ferrari factory and museum in

Maranello, Italy. The card also offers its fans exclusive deals on the official Ferrari online store in addition to a 21% tax waiver. Cardholders can also enjoy a complimentary membership to the Scuderia Ferrari Online community all year round. The Ferrari Infinite Credit Card offers customers double the chances to win the same benefits. It also provides exclusive offers on hotel bookings globally with hotelclub.com, access to global airport lounges, Harrod’s Black Tier Membership, complimentary multi-trip travel insurance (up to a value of USD 1 million), complimentary upgrade to premium admission at Ferrari World Abu Dhabi and Yas Waterworld, and Buy 1 Get 1 offers at Vox Gold Cinema. Infinite cardholders will receive an “Official Ferrari Classic Cap” once AED 10,000 is spent on the card.

STATS FACT:

21%

Tax waiver offered To ferrari crediT card users

News & Views

NEw REMIttANcE SchEME lAUNchED

AL ANSARI Exchange, a UAE-based foreign exchange and worldwide money transfer company, has announced the launch of a new rewards programme for customers transmitting money to Bangladesh. The Bangladesh Promotion will run until April 15, 2013, and all remittances to Bangladesh during the period will automatically qualify customers to enter the draw. Al Ansari Exchange will give away 10 gold bars, 10 air tickets from Air Arabia to Bangladesh and 20 National Bonds cash vouchers. The company further announced that ‘Cash Express’ and ‘National Bonds’ transactions will qualify as double entries. Rashed Ali Al Ansari (pictured), General Manager, Al Ansari Exchange, said, “We constantly look for ways to add value to the services that we deliver to our customers. Al Ansari Exchange has therefore launched the Bangladesh Promotion as part of the series of initiatives that we are organising this year to reward our customers. Moreover, this initiative is our way of expressing our gratitude to the UAE’s large population of Bangladeshis for choosing Al Ansari Exchange as their remittance solutions provider of choice.”

gRant tHoRnton named ‘netwoRk of tHe YeaR’ ADVISORY FIRM Grant Thornton has been named the International Accounting Bulletin's ‘Network of the Year’ at an award ceremony held in London. The year 2012 saw Grant Thornton grow faster (10.4%) than the other largest global accounting networks and provide thought leadership on critical global accounting issues such as lease accounting, revenue recognition, EU auditor reform, corporate governance and improving the auditor’s report. The award, which was judged by an independent panel, was based on a firm's ability to demonstrate their strength across a number of key areas including: evidence of top-level network-wide audit quality; a strengthened position in strategically important markets; and strong industry leadership. Hisham Farouk (pictured), Managing Partner of Grant Thornton UAE, said “Grant

Thornton has a strong reputation globally for helping dynamic businesses and this award demonstrates our consistent and high level of expertise across key areas such as evidence of client satisfaction and strategic positioning.” “In the UAE our personal services are tailored to each client’s needs as we strive to help them unlock their potential. We offer a wide range of services such as Advisory and Assurance and provide clients with hands-on support and actionable advice.”

Deloitte hosts Zakat meet DELOITTE’S ANNUAL Tax and Zakat seminars in Saudi Arabia have been carried out in the cities of Al-Khobar, Riyadh and Jeddah, focusing on recent developments in the Saudi Arabian tax and zakat laws and practices. Nauman Ahmed, Partner in charge for Tax Advisory Services for Deloitte in the Middle East, said the seminars provide an annual opportunity for decisionmakers to gain insight on major issues, clarify interpretation of the tax laws, and the practices of the Department of Zakat and Income

Tax. “Deloitte’s continued rating since 2008 by the International Tax Reviews as a Tier-1 firm is testimony to its in-depth knowledge of applicable laws and sound understanding of the prevalent environment and tax developments and its ability to critically analyse scenarios and provide pragmatic solutions to complex business issues,” he added.

IFRS SPecIal

IFRS FInally comeS to the RegIon Next month, Dubai plays host to the annual World Accounting Summit, where industry experts will gather to assess the progress of standards' implementation...

HE APPOINTMENT of Dr Abdulrahman Al Humaid as a Trustee of the International Financial Reporting Standards (IFRS) Foundation is a very significant step for the further development of IFRS in the Middle East.

Kurt rAMin MBA, CFE, CPA

At the same time it is a recognition and confirmation for the efforts put in by professionals and organisations to introduce IFRS in the region over the last years. In particular, IIR Middle East is continuing to support the introduction and knowledge sharing about IFRS with their forthcoming annual IFRS World Accounting Summit.

Topics of discussion The original idea goes back to the foresight of Abbas Ali Mirza who started the first summit in 2005 and still acts as the chair for the 9th Summit to be held May 20 to 23, 2013 at the Mövenpick Hotel Jumeirah Beach in Dubai. Over the past nine years, a number of world leaders in accounting and International Accounting Standards Board (IASB) board members have participated in the event. The concept of the summit is simple: industry professionals, accounting firms, international accounting bodies and international organisations present the latest developments affecting IFRS projects, implementation and education issues. These speeches are supported by workshops and master classes on specific subjects. However, most importantly are peer contacts created during

This year’s IFRS World Accounting Summit focuses on crucial subjects, such as Financial Instruments (including Fair Value Measurements), Revenue Recognition, Business Combinations and Consolidation and Leasing.

10 april 2013

Deloitte Audit Partner Abbas Ali Mirza started the first World Accounting Summit in 2005.

the summit. This year’s summit focuses on crucial subjects, such as Financial Instruments (including Fair Value Measurements), Revenue Recognition, Business Combinations and Consolidation and Leasing. Interpretation of IFRS, political developments and IFRS first time adoption are also discussed. Bonus for participants Practical applications are shown in case studies for industries such as real estate, banks and financial services, telecoms and oil and gas. As a bonus, each participant will receive a concise list of updates and proposed IFRS changes to take away.

The IASB and IFRS Foundation are supporting the infrastructure for the implementation of IFRSs: A translation of the IRFSs and IFRS for SMEs into Arabic, and an Arabic IFRS XBRL (eXtensible Business Reporting Language) taxonomy and learning materials are available on the www.irfs.org website. See also http://www. accountancyme.com/special-reports/how-manycapitals-do-we-need/

Presents

IFRS

20-23 May 2013, Mövenpick Hotel Jumeirah Beach, Dubai, UAE

A Practical Roadmap to Implementing IFRS in MENA Regional & International Experts

Mr. Atiq Juma Nasib Senior Director, Dubai Chamber of Commerce, Deputy Chair, ICC WCF’s International Certificate of Origin Accreditation Committee (ICOAC)

Tatiana Krylova Head of the Enterprise Branch, Division on Investments and Enterprise United Nations Conference on Trade and Development (UNCTAD)

Abbas Ali Mirza Partner Deloitte, Chairman 21st session ISAR/ UNCTAD, United Nations & Chairman Dubai Chamber’s Auditors Group

Ashruff Jamall Partner PWC

Yusuf Hassan Partner - Technical (Department of Professional Practice) KPMG

Anthony O’Sullivan Partner Ernst & Young

Regional Financial Practitioners

Paul Raftery Divisional Financial Controller - Finance and Corporate Affairs Group Mubadala

Rajesh Parek CFO DIFC

Casey Blatch Financial Planning, Reporting & Services Manager Almarai Company

Adil Madani Senior Manager General Accounting Qatar Telecom

Vijay Raghavan Group Financial Director ARENCO Group

Uzair Aziz Dawood Manager – External Reporting Emirates National Oil Company (ENOC)

New IFRS Standards effective 2013 will require you to RE-LEARN fundamental principles.

Receive a FREE Copy of the Wiley International Trends in Financial Reporting when you register

Are YOU ready?

Event Partners and Supporters

Media Partner

Organised By

The Institute of Chartered Accountants of Pakistan

To register visit www.iirme.com/accountingsummit

nc O ise n IF Upd RS a

CFO Survey

Stricter credit controls Based on the Deloitte survey, Middle East CFOs stand out for the strength of their outlook. A net 54% of CFOs are more optimistic about their companies’ prospects than six months ago — despite political instability and regional tensions.

GLASS HALF FULL? Middle East CFOs are the most optimistic globally, Deloitte's new market study shows...

FO OPTIMISM has rebounded from historic lows in many countries as several political and economic ‘uncertainties’ have been resolved or eased, according to Deloitte’s Q4 Global CFO Signals survey.

54%

ProPortion of Cfos in Middle east who are oPtiMistiC about their CoMPanies’ ProsPeCts today than six Months ago

12 April 2013

However, many chief financial officers (CFOs) worldwide remain cautious in resuming aggressive capital spending and are adopting a ‘wait-andsee’ approach that will likely yield a slow global recovery process.

“It’s no surprise that CFOs are still reacting to global economic volatility with caution and continued cost cutting,” said James Babb, Deloitte Middle East CFO Programme Leader. “However, it is also interesting to see the shift in confidence levels amongst CFOs, from 2008 till today. In general, 2012 was a year of dampened outlooks and uncertainty. However, this year, optimism levels amongst CFOs in the Middle East are expected to pick up as the global economic outlook is shifting,” he added.

For 2013, CFOs predict that optimism will translate into increased operating cash flows driven by higher revenues, stricter credit controls, and continued cost reductions. The latter is a priority shared with their global CFO peers — many of whom are waiting to also share their optimism. In addition, survey findings show that many CFOs are focusing their recovery on efforts close to home. In the Middle East, the 30 per cent of CFOs who are planning mergers and acquisitions (M&A) are aiming for targets aligned to existing businesses and within the MENA region. Other findings in the survey indicate that steady oil prices and large public expenditures are bolstering CFO optimism across the Middle East. The survey also reveals a mixed recovery approach by region, CFOs across the board had three major considerations they are factoring in their outlooks: growth, talent capabilities, and implications of local policies and regulations:

Growth: Economic conditions, investment, and solid execution are essential elements for growth. Around the globe, however, CFOs’ approaches vary.

Local issues a primary driver: While several global factors are weighing on CFO decision-making for 2013, implications of local issues and policies remain top of mind.

Talent and capabilities: Even in an unclear economy with threats of staffing reductions still lingering, CFOs are thinking strategically about talent capabilities and upcoming employment challenges.

There was no clear indication as to when CFOs expect conditions to improve. In Spain, 98 per cent of CFOs surveyed believe there will not be an improvement in economic indicators before the second half of 2013, and, of these, 29 per cent do not expect it before the first half of 2015. In Belgium and Ireland, CFOs are looking more toward 2014 for economic recovery. And in several of the Central European countries, CFOs believe things will get worse before they get better.

ETHICS IN PROFESSION

ACCA IN DAMAGE CONTROL Accountancy body pledges to help rebuild any lost trust in finance and accountancy profession... The minister went on to say that the profession, while still reeling after over one decade of crisisafter-crisis, must reinvent itself, and continue to strive to restore trust in individuals, the profession, and its systems.

Stuart Dunlop, ACCA’s Regional Director for Middle East, North Africa and South Asia (left) presents a memento to Bahrain’s Minister of State for Electricity and Water Affairs, His Excellency Dr Abdul-Hussain Bin Ali Mirza, after the Minister addressed participants at a networking event organised by ACCA in Manama.

INANCE PROFESSIONALS working in Bahrain and the Middle East have been urged to ensure that they continue working to the highest ethical standards in order to avoid the scandals that have hit other regions with ACCA (the Association of Chartered Certified Accountants) pledging to support them in helping to restore any lost trust in the financial sector. A networking event organised by ACCA in Manama heard from His Excellency Dr Abdul-Hussain Bin Ali Mirza, Minister of State for Electricity and Water Affairs, himself an accountant by training. He said that the accountancy profession still felt repercussions following the financial scandals of the past decade on a daily basis and he voiced his concern that more problems may still be uncovered. Loss of trust Those scandals had, he said, “led to a general loss of trust and confidence in the supposed ‘guardian’ of corporate transparency and integrity – the auditor.”

“The profession, while still reeling after over one decade of crisis-after-crisis, must reinvent itself, and continue to strive to restore trust in individuals, the profession, and its systems.”

He said that one of the biggest challenges facing the youth in today’s competitive environment was the attainment of the necessary skills to become a valuable member of society. He added the Government of Bahrain had demonstrated its commitment to the development of the accountant’s profession by sponsoring more than 650 Bahrainis to study for a range of qualifications with ACCA.

“This is the first time that such a large number of Bahrainis have been offered the opportunity to study for professional, rather than academic qualifications, as trends have shown that professional qualifications such as ACCA go a long way towards helping individuals achieve their professional career objectives,” said His Excellency. Good professional ethics Stuart Dunlop, ACCA’s Regional Director for Middle East, North Africa and South Asia (MENASA) underlined the work the body was doing, and said that ACCA professionals were expected to adhere to the highest standards, including blowing the whistle on unethical practice in the organisation for which they worked -even if that action might negatively impact on their future prospects.

He stressed that ethics and integrity was at the heart of ACCA's Competency Framework, stressing that these qualities had been identified as being critical by employers in a recent survey of finance leaders from around the world.

“ACCA is committed to working in partnership with tuition providers, employers and the Government here and around the world. It is very important to ensure that in developing the complete finance professional with the skills and qualities being sought by businesses, there is a clear understanding by our students and members that they should not only be good financial professionals, but finance professionals who are good,” Stuart said. 13

Women in Finance

THe GenDeR

aGenDa

EMPOWERMENT: “Women are playing a major role in driving the world’s growth economies, bringing balance to the decision making process and the smooth running of their companies,” says Hisham Farouk, Managing Partner of Grant Thornton UAE.

Business leaders in the Middle East champion calls, set targets and quotas to support diversity on corporate boards …

ESEARCH FROM the Grant Thornton International Business Report (IBR) reveals that globally, more women are making it into senior management roles than at any time since 2010. However, progress is slower in the G7 group of developed economies, where economic performances have been stuttering, than in the high growth economies of Asia and the Far East.

Grant Thornton urges businesses in developed economies to emulate emerging market counterparts and reap the benefits of having more women in senior positions.

BRIC economies IBR data shows that globally, 24% of senior management roles are now filled by women. This is up from 21% in 2012 and 20% in 2011. However, the G7 economies are at the bottom of the league table with just 21% of senior roles occupied by women. This compares to 28% in the BRIC economies (Brazil, Russia, India and China), 32% in South East Asia and 40% in the Baltic States. Hisham Farouk, Managing Partner of Grant Thornton UAE commented: “The pioneer economies where economic growth is high have greater diversity in their senior management teams. Women are playing a major role in driving

“Quotas which have been announced within the UAE will move the gender inequality into a dynamic place over the coming years.”

14 april 2013

the world’s growth economies, bringing balance to the decision making process and the smooth running of their companies. In comparison, the mature economies of the G7 are now playing catch up. They need to wake up to gender disparity and add this crucial ingredient to long-term growth and profitability.”

Japan (7% of senior roles occupied by women, the worst performer), the UK (19%) and the USA (20%) are in the bottom eight countries for women in senior management. These economies are also experiencing low levels of growth, with GDP in Japan (1.9%), the UK (-0.1) and the USA (2.2%) in 2012 all modest. In contrast, top of the table for women in senior management is China, with 51%. GDP growth for 2012 there is expected to be between 7-8%. The top 10 also contains the growth economies of Latvia, Vietnam, Thailand and the Philippines.

Promote more women The UAE, whilst it has some way to go, was showing positive signs in that 24% of companies surveyed are planning to hire or promote more women into senior management over the next 12 months. Hisham Farouk added: “Quotas which have been announced within the UAE will move the gender inequality into a dynamic place over the coming years. We are already beginning to see and feel the shift in balance with a number of qualified entrepreneurial women adding to the business start-ups across the country. Businesses across the UAE need to embrace the change and empower its women to reach the boardroom.”

Women in Finance

neW PoLicieS FoR incLUSiVe LeaDeRSHiP ACCORDING TO Deloitte’s fifth annual International Women’s Day (IWD) webcast survey, innovation and idea generation are the most significant advantages to organisations that embrace inclusive leadership to improve gender diversity (49% of respondents), followed by increased employee engagement (28%), and greater retention and advancement of women (15%). The survey of 720 business leaders from 42 countries across the Middle East, Asia, Europe, and the Americas explored the concept of inclusive leadership – behaviours, policies and practices designed to successfully manage diversity and allow for greater inclusion - and its impact on improved gender equality and organisational performance.

Fifty-one per cent of those surveyed said inclusive leadership is a key area of focus for their organisation. However, 41% felt the main barrier to inclusive leadership was a failure by organisations to recognise the return on investment from having a diverse workforce. Reaping the rewards Rana Ghandour Salhab, Talent and Communications partner at Deloitte Middle East commented: “The survey respondents indicated that companies that recognise the importance of gender diversity will reap the rewards. Traditional approaches to diversity are getting women in the door and fostering retention and development, but we are still not seeing women advance to leadership positions quickly enough.

“Inclusion is a critical element required to better empower and advance women to top-level positions in the private and public sectors. In the Middle East, these transformations are just getting started, and there is a lot more to be done. It is important to involve men in the conversation, and continually challenge long-held assumptions and traditional ways of working in order to accelerate progress. Businesses simply will not be able to remain competitive and innovative if they do not employ a diverse workforce.”

UPHILL TASK: Leadership inclusion is a critical element required to better empower and advance women to top-level positions in the private and public sectors.

Women in the boardroom report In addition, Deloitte released the third edition of the “Women in the Boardroom: A Global Perspective,” report, which outlined that organisations would benefit from increased participation from shareholders on gender diversity discussions in the boardroom. The report examined initiatives in 25 countries aimed at increasing the number of women in boardroom positions around the world, highlighting a variety of approaches to support diversity on boards, including requiring more disclosure on diversity policies, setting targets, and implementing quotas. The report found a large discrepancy among countries regarding the most efficient way to increase the number of women occupying boardroom positions.

24%

senior management roles filled by women, globally 15

Women in Finance

neW FoRUm FoR FemaLe Finance LeaDeRS in QaTaR A NEW forum to enable women in senior roles within Qatar’s finance and accounting sector to meet and discuss key issues has been launched in Qatar. The Qatar Women in Finance and Accounting forum (QWFA), is an initiative of ACCA (the Association of Chartered Certified Accountants) in the Middle East with the intention of providing a platform for female finance leaders to talk about a wide range of topics.

A working committee of members who hold high level finance jobs in leading organisations such as Qatar Petroleum, Ecovert Qatar, Ras Gas, Qatar Gas and global accounting firms Deloitte and Ernst & Young will meet in the next two weeks to discuss the QWFA’s objectives and look at potential future activities.

A welcome opportunity The forum is the brainchild of Deepa Chandrashekar, a senior finance professional at Qatar Petroleum. Deepa Chandrashekar said: “Given there are a growing number of women working in senior and influential roles in finance and accountancy in Qatar, I thought that a forum would provide a welcome opportunity for their voices to be heard on a range of critical issues. I very much look forward to meeting with outstanding female finance professionals in the coming months to look at a number of key subjects – and I am sure that our discussions will make a real contribution to the future success of the finance profession in our country.” Ritu Nanda, Head of ACCA for Oman and Qatar, said: “We are delighted to be helping to develop Deepa Chandrashekar’s idea and provide a forum where female finance professionals could discuss a range of issues, bringing different perspectives to a number of subjects. ACCA looks forward to participating in the forum and to supporting its work and activities in future.” 16 april 2013

LEADING THE PACK: The Qatar Women in Finance and Accounting forum (QWFA) is the brainchild of Deepa Chandrashekar, a senior finance professional at Qatar Petroleum.

To ensure the debate continues across the Middle East, ACCA will also be hosting a networking event for women in finance and accounting in the UAE in June. This follows on from a roundtable organised by ACCA in Dubai last year which highlighted the need for a more flexible approach to working in order to ensure that the number of women in leadership positions is able to grow, and from a networking event held for female finance professionals in June 2012.

CHANGE AGENT: “We are delighted to provide a forum where female finance professionals could discuss a range of issues, bringing different perspectives to a number of subjects,” says Ritu Nanda, Head of ACCA for Oman and Qatar.

Women in Finance

WcD LaUncHeS GULF cHaPTeR WOMEN CORPORATE Directors (WCD), a global membership organisation of females in senior management positions, has inaugurated its first Arabian Gulf chapter. Based in UAE’s capital of Abu Dhabi, the WCD Gulf Cooperation Council (GCC) chapter has been created following a yearlong consultation exercise with prominent senior female executive women from the GCC area. The outcome is the creation of the WCD GCC chapter, which was formally inaugurated at an event held recently under the patronage of Her Excellency Sheikha Lubna bint Khalid Al Qasimi, UAE Minister for Foreign Trade.

Sustainable future Speaking at the event, Sheikha Lubna said: “For our region to maximise its future potential we need business leaders who are ready and equipped to help steer it forward. I see Women Corporate Directors in the Gulf as an important part of that solution. By identifying and connecting qualified and experienced female business leaders, and helping to develop their successors, we will create a powerful community of women able to contribute fully to the sustainable future of a region which has so much potential.” WCD GCC chapter will be overseen in its first year by eight ‘Founding Members’ who comprise senior female ‘C-suite’ executives from across the GCC region.

The founding members will act as a defacto board and will steer the Chapter forward across its aims of building a trusted community of female executives across the region who can leverage each other’s experience and knowledge, as well as spearheading awareness-raising about the role that women could potentially play in organisational success across the region.

NETWORKING: “By identifying and connecting qualified and experienced female business leaders, we will create a powerful community of women able to contribute fully to the sustainable future of a region,” says Sheikha Lubna bint Khalid Al Qasimi, UAE Minister for Foreign Trade.

Board Members: The Founding Members of WCD GCC represent C-suite and board members from the UAE, Kuwait, Oman, Bahrain, Qatar and Saudi Arabia and include individuals such as:: Fatima Obaid Al Jaber Claire Woodcraft Donna Sultan Sabah Al Moayyed Khaula Al Harthy Fawzeia Al Mubarak H.H. Sheikha Dheya bint Ebrahim Al Khalifa Hala Badri Najla Al Midfa 17

AuDIT STANDARDS

GCCAAO IN LANDMARK DEAL WITH ICAEW Agreement to see development of world-class monitoring system and support creation of a framework to monitor application of international audit standards in GCC states...

HE GULF Co-operation Council Accounting and Auditing Organisation (GCCAAO) and the Institute of Chartered Accountants in England and Wales (ICAEW) signed a landmark agreement to develop an Audit Quality Monitoring Programme for the GCC countries. The agreement – the first pan-national project of its kind – was signed at a ceremony commencing the seventh GCCAAO Annual Forum by Mohammed Salih Al-Obailan, Chairman of GCCAAO and Vernon Soare, Executive Director, ICAEW, held at the Raffles Hotel, Dubai. Also present was the UAE Minister of Economy, His Excellency Sultan bin Saeed Al Mansouri. Under the agreement, ICAEW will assist the GCCAAO in developing a world-class Audit Quality Monitoring Programme, and offer advice and support on the creation of a Gulf Monitoring Unit (GMU), to monitor the application of international standards on auditing (ISAs) in each GCC country. Monitoring framework GCCAAO has asked ICAEW to draw on its internationally-recognised expertise and experience to advise on best practice concerning recruitment, regulation and creation of a monitoring framework.

Dr Abdulkarim Alzarouni, GCCAAO Vice-Chairman, said: “GCCAAO aims to co-ordinate and integrate the accounting and audit profession – across all GCC members – and this project seeks to promote the very highest professional and technical standards in audit. It is therefore a great pleasure to be working with ICAEW, one of the oldest and most-respected professional accountancy bodies in the world.” 18 April 2013

MILESTONE: Vernon Soare, ICAEW’s Executive Director exchanges official documents with Mohammed Salih Al-Obailan, the Chairman of GCCAAO, after the two Faculties signed an agreement to develop an Audit Quality Monitoring Programme for the GCC countries.

“ICAEW is recognised internationally for its rigorous commitment to professionalism and ethics, and we are delighted they will be supporting our work to make audit in the GCC member countries a beacon of quality,” he added.

Vigilance and transparency Vernon Soare said: “The Middle East is one of the most rapidly developing regions in the world economically, and stands at the centre of global trade and investment. Audit quality has a huge role to play in underpinning market confidence, through vigilance and transparency both within countries and across national borders. ICAEW applauds GCCAAO for all of its efforts to ensure the GCC countries have the highest possible audit quality – which we believe is critical to ensuring the region’s continued prosperity – and is proud to be supporting their vital work.” Work between GCCAAO and ICAEW will occur in three phases, designing an effective framework and GMU, development and implementation, and ongoing support.

Peter Beynon, Regional Director, ICAEW Middle East, said: “Ultimately, the ability to do business rests on the confidence placed in the accountancy profession, which is why ICAEW is committed to supporting the profession across the Middle East. We are delighted to continue to be part of this work in the region through working with GCCAAO.”

CMY

KPMG 40Th ANNIvERsARy

CORPORATE RE-ENGINEERING Financial consultancy business in the Gulf is facing dramatic change. In an exclusive interview with Joyce Njeri, Ian Gomes, KPMG’s Head of Advisory and Markets, reveals how the advisory firm is transforming itself in order to maintain its leadership position in the sector, by offering clients multidimensional solutions…

20 April 2013

KPMG 40Th ANNIvERsARy

What in your assessment are the most common consulting challenges consulting businesses are facing in today’s competitive marketplace? In a const antly changing and challenging economic environment, the issues facing our clients are fluid and demand sector specific skills and solutions …. The days of the “generalist management consultant” are well behind us. Clients are also demanding more for less (fees) and are showing an inclination to link par t of the fees towards successf ul outcomes – this means they want to see us also help them with the task of implementing many of our recommendations which is a change from the past when the consultant’s job ended on delivering the recommendations. Whilst we are still in a low growth environment, companies are more focused on directing their spending to the matters that either keep management awake at night, improve their profitability or driven by regulatory requirements.

The market is yet to mature fully to recognise value so a continuing challenge is the tendency of organisations, particularly their procurement functions, to expect consulting firms to operate at both ends of the price-value continuum, at the same time. Whilst they are sometimes willing to pay a premium for highly specialised skills, the procurement processes often put a higher emphasis on pricing thereby making it difficult for firms to always present their best skilled resources. Moreover, clients prefer their consultants not only to be based locally but also to embody the best in international experience, this puts significant pressure on pricing and margins. There is no question that consulting firms have to review and modify our operating models to meet this challenge. The war for talent may have slowed but good talent is scarce and certainly not cheap, even for consulting firms. What are KPMG’s priorities and how is the firm responding to these challenges?

We are conscious we have to always be client and market relevant so we are making sure we have the right subject matter experts available to us within the region and we are able to deliver our solutions and expertise at the right price. To deliver value to 22 April 2013

SETTING PRIORITIES: The days of the ‘generalist management consultant’ are well behind us, Ian Gomes reckons

KPMG 40Th ANNIvERsARy

“Business performance, governance and profitability continue to be the primary drivers of our advisory businesses – all issues designed to enhance cost competitiveness, transparency and customer centricity.” our clients we are, amongst other things, focused on efficiency and thus have a strong focus on reengineering our advisory businesses with smart operational models. To give you a few examples; many of our clients are worried about data security and digital threats or they are keen to improve their operational security so we have ensured the local market also has seamless access to our pool of over 300 highly skilled IT consultants within our Indian firm. Similarly, our world class Restructuring and Debt Advisory expertise has been evident locally to both lenders and borrowers following our involvement as Advisors in the region’s largest restructuring assignment: this was only enabled by the firm moving highly skilled resources from London to the UAE. Recently, we also moved our global advisory head of Energy & Natural Resources from Russia to the UAE to bolster the local talent pool. Nothing is static in the market so nobody should be surprised to see us constantly evolving and changing our skill sets and focus but always seeking to be relevant to our clients and the local opportunities. As the region experiences growth particularly in oil & gas, telecoms and financial services, what do you think is the future of consultancy in the region?

Let me touch on the subjects which are keeping us busy. Business performance, governance and profitability continue to be the primary drivers of our advisory businesses – all issues designed to enhance cost competitiveness, transparency and customer centricity. For those of our clients who are in a myriad of businesses (local conglomerates), there are additional issues, for example, common IT and HR platforms, central sourcing, capital allocation and working capital/cash management. Of course, in this economic environment, we also have our restructuring specialists busy helping 23

KPMG 40Th ANNIvERsARy

“The financial sector is coming out of one of the longest periods of negative to slow growth – we are seeing increasing interest in customer management and performance improvement.” bankers or companies that are either financially stressed or distressed.

Succession planning and the right governance model for the next generation are also high on the agendas of many of our owner managed business clients. Technology plays a central role across the board and here we are also able to leverage the state of the art facility we have in India for our clients to experience or jointly develop solutions and train their teams.

In government and quasi-government organisations, whether the public utilities, transport, financial services, oil and gas or telecommunications; these are all sectors where the firm is active and sees more opportunities. As the GCC economies come out of the global slowdown and enter a new phase of growth, we expect consulting spend to increase significantly in these sectors.

services were delivered by auditors with relevant experience. About 20 years ago, we saw greater industry and functional specialisation creep into the firm and that has gradually evolved into full time consultants and advisory specialists. Today, we have three distinct clusters within Advisory which are Transactions and Restructuring, Management Consulting and Risk Consulting and together they deliver around 45 per cent of our total revenues. We now have over 700 client facing staff in the UAE, of which over 250 belong to our Advisory businesses. Most of the markets in the Middle East region are yet to recover from the 2008/09 financial crisis. Companies continue to be cautious in spending as inflation and high taxes eat into their revenues. What is your take on the current market situation in the region?

The market is different from country to country in the GCC. In the UAE, there is indeed an improvement in results and investment activity has picked up across the board – this includes the real estate sector which was hardest hit during the recession.

In the oil and gas sector, it will be driven by capacity expansion on the one hand and operational performance improvement on the other. In telecommunications, we expect the solutions to be around business models, growth and consolidation, customer and cost management. The financial sector is coming out of one of the longest periods of negative to slow growth – we are seeing increasing interest in customer management and performance improvement. Across all sectors of the economy, talent acquisition and management will be one of the top issues that organisations and their CEOs will have to deal with. How has the advisory business evolved in the last 40 years that KPMG has been operating in the UAE?

When we started out in 1973, and for many years thereafter, nearly all of our revenues came from external audit services. Our advisory services were largely in the transaction support area and those 24 April 2013

DIFFERENT APPROACH: “Nothing is static in the market so nobody should be surprised to see us constantly evolving and changing our skill sets.”

KPMG 40Th ANNIvERsARy

Inflation remains under control in most countries as there continues to be minimal increase in demand over supply and excess capacity in most markets. Some markets have suffered as a result of the Arab spring though this has benefitted the UAE economy through increased tourism and retail activity. In several countries, we have seen significant government spend which is having a positive impact. For example, oil production in Libya is now at pre-revolution levels and this will undoubtedly see further investment in heavy infrastructure. Economic cycles are a fact of life and, undoubtedly, this will continue to be the case. One observation I would make is that the banking sector has been significantly more cautious than it was in past crises and, whilst small bubbles are likely, they will hopefully not be as extreme as investors absorb the painful lessons from the past. What is your opinion about recent policies and laws around ceiling on fees charged by investment advisors?

Apart from liquidatorsâ&#x20AC;&#x2122; fees in European jurisdictions, I am not aware of any caps imposed on fees charged by advisors. However, as I pointed

out earlier, the tender and procurement processes, particularly within several governmental entities in the UAE, place a disproportionate weightage on price. Whilst this attitude may be changing in the more sophisticated entities that are also taking the technical qualifications more seriously, it does generally deter advisors from putting their best teams forward for government work whilst saving their most creative minds for the private sector who value unique solutions more highly. Finally, the vast numbers of investment options makes it especially difficult for SMEs to choose suitable avenues which will be both tax efficient and deliver reasonable growth. Do you think enough is being done to address the broader issue of financial literacy and investment advice?

I assume you are asking whether investors are not investing in SMEs because of the wide choices available and whether there is sufficient education about SMEs available to investors. There are dedicated investment funds that target SMEs and these have been crucial in the development of the middle market in many GCC countries. In the UAE, Khalifa Fund and the Mohammed bin Rashid Establishment for SMEs have been highly active.

The private sector is also active in the SME sector. For example, the recent purchase of Aurios by Abraaj Capital, a leading Private Equity house in the GCC, demonstrates that there is significant interest in the sector. A couple of years ago, Abraaj also set up the Riyada Enterprise Development Fund to target venture capital investments in Saudi Arabia. The ticket sizes may be small but more importantly these investments are part of a sector platform which provides a strong basis for improvement in the areas of governance, process improvements, procurement synergies, whilst providing a strong incubation to these nascent enterprises. The PE market is dry currently with few major investments being made annually. As a result, PE houses have had to cast their nets wider and SMEs have been a target segment. In order to encourage investments into this sector, several symposiums focus on entrepreneurship and venture capital. These are abundant in the Middle East region with several being held in the UAE annually.

KPMG 40TH AnnIvERsARy

WEALTH WIRE READY MONEY: Regardless of how GCC SWF investment strategies evolve, one thing is for sure: their investable cash reserves will continue to ensure that they remain a key player in the global investment community.

Vikas Papriwal looks at the investment strategy of GCC SWFs and how these funds have evolved since the onset of the 2008/2009 global financial crisisâ&#x20AC;Ś

ViKas PaPriwal Partner, KPMG - Uae

S THE global economy has evolved, GCC Sovereign Wealth Funds (SWFs) have evolved with it.

While SWFs have continued to grow (both in head count and internal capacity and capability), we have seen a willingness to change their investment strategies in order to adapt to both the local and international market forces.

This article looks at the investment strategy of GCC SWFs since the onset of global the financial crisis in 2008/2009, and how these funds have evolved (and continue to evolve). Also, looking into the future and in light of the on-going financial worries in Europe and the US, we discuss the outlook for SWFs in the short to medium term. 26 April 2013

Global SWF aSSetS Under ManaGeMent

6 5

GCC SWFs

Non GCC SWFs

4 3 2 1 0

2.3

3.1

3.9

1.1

1.4

1.8

2007

2010

2013

Source: SWF Institute (March 2013)

KPMG 40TH AnnIvERsARy

$1.8 tn

top 5 Gcc SWFS aS at MarcH 2013

country

no.

Sovereign Wealth Fund name

asset ($ billions)

Uae

abu Dhabi investment authority

627

saudi arabia

saMa Foreign Holdings

533

Kuwait

Kuwait investment authority

296

Qatar

Qatar investment authority

115

Uae

investment Corporation of Dubai

ToTal asseTs under managemenT (aum), as aT march 2013, in The gcc

70 Source: SWF Institute (March 2013)

The GCC SWF landscape With over 10 SWFs and close to $1.8 trillion of assets under management (AUM) as at March 2013, the GCC represents the highest concentration of global sovereign wealth (with c.30% of the total global AUM). The UAE, KSA, Kuwait and Qatar are home to the five largest SWFs in the GCC, including the UAE’s ADIA – the second largest SWF globally, behind Norway’s Government Pension Fund.

Supported by the increase in the level of oil & gas (O&G) exports and strengthening of O&G prices, GCC SWF’s AUM have increased from $1.1 trillion in 2005 to $1.8 trillion.

The GCC’s collective O&G exports reached a record $738 billion in 2012, more than double the value of O&G exports in 2005 (of approximately $305 billion). The largest contributors to this growth were the UAE and KSA – the 7th and largest oil producers in the world, respectively.

Onset of global financial crisis Despite the onset of the GFC in 2008 and 2009, GCC SWFs continued investing internationally and across a wide range of industries and asset classes. While the credit crunch brought about a decrease in investment throughout the world, GCC SWFs benefited from access to liquidity and were able to continue to invest and diversify away from their reliance on natural resources – one of their primary investment objectives.

HiStorical and projected oil priceS

140

111

120

$ / barre l

100 80

112

105

107

110

115

80 62

60 40 20 Source: World Bank (March 2013)

0 2009A

2010A

2011A

2012A

2013F

2014F

2015F

2016F

2017F

KPMG 40TH AnnIvERsARy

Through a number of high profile and economically motivated investments, GCC SWFs made headlines across the world as they made a number of large investments into the West and Asia. With investments into iconic car brands, high end real estate and financial institutions, Europe has historically been a popular destination for GCC SWFs. While GCC SWFs do not generally limit their investment strategy to any particular sector, there was a significant investment into the financial sector from 2008 to 2010 which, arguably, reduced the intensity and impact of the GFC on the sector. Prominent financial sector investments by GCC SWFs include QIA’s investment in Barclays, KIA’s investment in Merrill Lynch and SAMA’s investment in UBS.

The last 12 to 24 months While the lingering global economic slowdown, the Eurozone debt crisis and US fiscal cliff has not completely halted Middle Eastern interest in the West, GCC SWFs have certainly become increasingly selective and cautious in their assessment of their investments. A number of GCC SWFs are adopting a ‘wait and see’ approach to the west in response to the continuing global uncertainty. In contrast to other parts of the world where governments are promoting austerity measures and introducing significant cuts to public spending, stable O&G prices have supported an increase in national budgets and public social expenditure in the GCC.

With an enhanced focus on local unemployment, education, and healthcare, regional governments are making considerable efforts into investing and promoting the development within their own countries. Consequently, SWFs whose priorities included funding investments outside of the region, are increasingly investing into local economies. Fifty six per cent of funds were allocated to

The UAE, KSA, Kuwait and Qatar are home to the five largest SWFs in the GCC, including the UAE’s ADIA – the second largest SWF globally, behind Norway’s Government Pension Fund.

28 April 2013

regional investments in 2012 compared to 33% in 2011 (source: Invesco Report 2012).

We expect this trend to continue in the medium term. The GCC region plans to spend approximately $142 billion on infrastructure projects between 2012 and 2020, the majority of which relates to rail and road projects. This is in addition to planned mega projects including the $86 billion King Abdullah Economic City in KSA, Qatar’s $70 billion football World cup related infrastructure and the UAE’s $20 billion Masdar City development.

Further to the evolution in their investment strategies during the last 12 to 24 months, it is our view that SWFs in the region have become increasingly sophisticated. Whether in response to the GFC or simply as a sign of evolution, SWFs have invested heavily in their own in-house capacity and capability.

Large SWFs in the region have significantly increased their headcount year on year and have recruited a number of key individuals from around the world (as well as train local talent) to help drive their investment strategies going forward.

Outlook While SWFs in the GCC will certainly continue to invest outside of the region as they seek to diversify their investment portfolio, it is likely that the international economic environment and local development plans will continue to drive the allocation of a significant portion of their funds towards local economies in the short to medium term. That said, emerging markets such as the Far East, the Sub-continent, North Africa and Latin America are gradually becoming more popular as GCC SWFs are showing a willingness to explore international opportunities outside of Europe and the US.

The question as to whether GCC economies are able to absorb large sovereign fund investments while providing SWFs with a suitable risk/ return profile is an entirely separate matter. However, regardless of how GCC SWF investment strategies evolve, one thing is for sure: their billions of dollars of investable cash reserves will continue to ensure that they remain a key player in the global investment community and are well placed to take advantage of a recovery in global economic conditions.

KPMG 40Th ANNIvERSARY

FUTURE-PROOF YOUR BUSINESS GCC companies have an opportunity to innovate and grow sustainably in a green economy, or they could put their business models at risk, argues Louise Venables…

SERIES of ‘megaforces'—massive social and environmental changes such as population growth, water scarcity, and climate change — will challenge governments and businesses around the world in the coming years. No country or company will be impervious to these megaforces, but the Gulf Cooperation Council (GCC) region will face particular challenges due to its unique geography.

GCC companies have an opportunity to innovate and grow sustainably in a green economy, securing competitive advantage, or they could put their business models at risk. KPMG Climate Change and Sustainability Services (CC&S) professionals help businesses apply sustainability as a strategic lens to their operations.

Extreme weather conditions Climate change — one global megaforce that directly impacts other forces — brings risks to businesses in the GCC. According to Saudi Arabia’s meteorological office, the GCC will experience temperature increases of up to 4°C by 2100 over much of the region.

This is likely to lead to more frequent extreme weather events, potential sea level rises and changing freshwater resources. Governments and businesses in the region are coming under increasing international pressure to reduce carbon emissions. Water scarcity — another megaforce — is already challenging regional companies and governments. Many GCC countries are among the most water-stressed in the world, according to a recent published report, yet

the region has the highest per capita rates of freshwater extraction globally, and water use continues to increase. The cost of water will rise as shortages occur and more water has to be supplied by energy intensive desalination plants. Industries, manufacturers and retailers will face growing risks from water scarcity and volatile supplies, but opportunities exist to find new water efficient processes, increase water re-use and recycling. If this trend continues, businesses may face severe material shortages (another megaforce) unless investments are made to develop substitute materials, and to recycle and recover resources from waste products.

Sustainability policy A sustainability strategy is crucial for companies to anticipate the challenges presented by environmental and social megaforces and to grasp related opportunities. With a long history intimately tied to its unique environment, the GCC region is well placed to respond to sustainability challenges and harness new opportunities today.

LoUise VenabLes Manager, KPMg - Uae

11%

Companies in GCC that have a deClared sustainability poliCy, strateGy or vision 29

KPMG 40Th AnnivERsARy

ROGUE ROULETTE Is your company vulnerable to rogue trading? Abbas Basrai advises on the red flags to watch out for…

T ALWAYS starts with a guy having a great idea in his heart. Dynamic instincts. Hawk-like vision. Inconveniently, you are missing cash. Just enough to take that big position on an apparent, exciting, 100% certain thing.

AbbAs bAsrAi Director, KPMG - UAe

The chronicles of finance is plagued with rogue traders who give in to this sort of rationale.

Recent additions to the rogues select group include Kweku Adoboli, a former UBS trader accused of loosing about $2.3 billion. Then there was Jerome Kerviel, of Societe Generale, who was sentenced to three years in prison. One cannot forget Nick Leeson, a trader who in 1995 caused the collapse of the British merchant bank, Barings. Of course, these are the guys that got caught. It is interesting to note that the ‘rogue’ traders only seem to surface when their trades are in the red. There must be unauthorised trades that actually end up generating massive profits too. Surprisingly, they remain in the dark.

Cycles of financial crashes Rogue trading is not an anomaly but integral to the banking system. Similar to the cycles of financial crashes that have occurred throughout history, rogue traders are always with us. The rogue’s enigma is that he has a vast amount to lose, and precious little to gain and therefore makes little rational sense.

Most of those who are caught don’t gain enough so as to compensate for the strains of concealment they endure for years, and the punishment they face. 30 April 2013

KPMG 40Th AnnivERsARy

Rogue trading is not an aberration but integral to the banking system. Like the cycles of financial speculation and crashes that have occurred throughout history, rogue traders are always with us.

So why do traders go rogue? Rogue traders generally start by making small loses and concealing them, before their trading rockets. When they start to gamble in an effort to cancel them out, they are drawn into an escalating pattern of risk-taking and increasing two-fold, which culminates in gigantic losses in the final days before they are apprehended. It was reported in the aftermath of the UBS incident that Kerviel undertook small bets at Soc Gen in 2005 and 2006 before building a €28 billion stake in futures (on which he made money) during 2007 and then doubling up in a disastrous €49 billion gamble.

Rogue traders’ behaviour is financially foolish – traders are trained not to double their losses but to set risk limits and to withdraw from dodgy positions when they face danger. ‘Tone from the Top’ Increased controls or regulation are not the answers to rogue trading. Setting the ‘Tone from the Top’, real incentives in all functions, comprehensive capture systems and harmonised control chains under a powerful COO, and reinforced financial training for support staff would be more effective.

TONE FROM THE TOP: Introduction of more controls or regulation is not the answer to rogue behaviour. Leading from the frontsetting the tone from the top – is the most effective answer to operational losses in trading activities.

Unfortunately, we know quite a bit about those who have gone ‘rogue’ but very little about those who might. It is difficult to establish a distinctive profile of these individuals and traders who do go ‘rogue’ don’t look remarkably different from those who don’t.

Therefore, given the difficulty in recognising who will be the next headline grabber, possibly the aim of organisations should turn inward. Organisations need to recognise and halt such patterns of rogue behaviours that appear and are inadvertently condoned by the organisations themselves. 31

KPMG 40Th AnnivERsARy

SHAME: Kweku Adoboli, a former UBS trader, was accused of vaporising about $2.3 billion from the bank.

In the past we have highlighted and pointed out that ‘Leadership’ has a critical role in ensuring that the tone from the top – in both words and actions – communicates what is expected, valued and rewarded in the business. Strong management and supervision can avert rogue behaviour, creating a culture of challenge so that the control functions do their jobs effectively and capture the small things before they commit the crime. Individually, these incidents are seldom severe enough to trigger formal sanctions but, taken together, they can paint a picture of where serious patterns of conduct and culpability issues are beginning to form.

Unacceptable losses Although fingers are generally pointed at system failures or control weaknesses in the immediate aftermath of a rogue trading incident, we have seen that a closer examination of the contributing factors almost always points to culture and people-related root cause.

Ariane Chapelle, Professor of Finance and Risk Management at the University of Brussels, in his paper ‘The paths to rogue trading’ has rightly pointed out that majority of roguetrading activities develop according to the same mechanism: undetected unauthorised open positions, which are either fictitiously covered by fake trades, or are simply not 32 April 2013

included in the trading systems, turn bad, and balloon to the point they cannot be hidden any more, leading to unacceptable losses.

Rogue trading must be first tackled in front offices, with supervisors being strict on traders exceeding their risk limits, regardless of the outcome of their bet. Lack of comprehensive systems and weaknesses in processes are some of the reasons for how a rogue trader manages to keep his wrong doing undetected. Over the past decade, many banks followed a strategy to grow inorganically. This has resulted in a patchwork of systems, with spreadsheets in common use, especially for exotic, complex and tailored products. The manual nature of spreadsheets is always

IN THE GUTTER: In 1995, Nick Leeson caused the collapse of the 233-year-old British merchant bank, Barings.

KPMG 40Th AnnivERsARy

prone to errors and omissions in recording trades in the front office, let alone intentional manipulations. In fragmented systems, there always remains a risk that trades can remain undetected for a long period until a cash event such as a margin call or the maturity of the product occurs. Human nature prevails A centralised support function will help in capturing the small alerts raised about a trader before it becomes severe enough. As reported in the media on various occasions in the aftermath of the Soc Gen incident, we note that, 74 alerts had been raised about Kerviel over an 18-month period, spread across different backoffice, risk and accounting departments before the 75th was followed up, leading to the rogue incident being uncovered. Aggregation of alerts about a single trader, a single product, or a single desk can paint a picture of where serious patterns of conduct are beginning to form and can act as an effective tool against internal fraud.

Routine supervision is often inadequate as a deterrent to rogue trading. Staff profiles in support functions vastly differ from those of the traders they are required to control. Many consider a support job as an entry into the bank, hoping to move to the front office. This results in a continuous loss of knowledge within the control function and more importantly inadequate supervision – how can one be independently controlling the traders/desk if the hope is to join the same team in the future. Human nature prevails – you do everything to be in the good books of your future boss. Some others see it as an administrative job – and may lack the financial knowledge and/or management capability required for proper supervision.

Effective support functions In addition to technical training, empowerment of the support functions with respect to the front office is also a necessity. Segregation of duties, that is front office and back office to operate under separate authorities, is the cornerstone of fraud prevention. Although segregation of duties exist at every bank in reality these are less distinct. Assertive traders will commonly push back on controller who will be too intimidated to ask

FALL OF THE MIGHTY: Jérôme Kerviel, of Societe Generale was sentenced to three years in prison after being found guilty of rogue trading.

for further explanations about a transaction they do not understand. This is not effective risk management.

To practice good risk management, risk elements (respecting risk limits and following up alerts) have to be included in all staff objectives. In the absence of this, it is foolish to expect they will trade within the risk framework set and therefore will not be encouraged to reduce losses.

Effective support functions results in a robust control environment. Despite the risks in trading being generated in the front office there is too much control pressure on the support functions. This, effectively, results in absolving front office for all the risks it generates and ends up sending the wrong message. To enhance effectiveness and efficiency of risk management, support functions should be valued with proper pay and f lexible incentives depending on the quality of controls. Almost every financial institution is very much in need of this. Introduction of more controls or regulation is not the answer to rogue behaviour. Leading from the frontsetting the tone from the top, comprehensive systems, proper incentives in all functions, and harmonised control chains under one chief operating officer's authority are the most effective answers to operational losses in trading activities, fraudulent or not.

KPMG 40Th ANNIveRSARy

TAX STRUCTURING IN SWF Nilesh Ashar discusses the concept of sovereign immunity from taxes available in key investment markets such as US, UK, France, and Germanyâ&#x20AC;Ś

HE ASSET Sovereign globally increasing to March 2013.

nilesh ashar Partner, KPMG â&#x20AC;&#x201C; Uae

under management of Wealth Funds (SWFs) has been steadily and stood at $5.7 trillion

SWFs are investing increasingly across geographies and asset classes, and are considered a significant source of capital particularly since the institutional investors scaled back their investments in light of the global financial crisis.

Sovereign Immunity Sovereign immunity is a judicial doctrine under international law according to which one country is immune from suit in another country. This principle also extends to imposition of taxation on foreign governments, generally in respect of their non-commercial activities.

While most SWFs enjoy special tax exemption in their home countries as they are considered part of Government (and UAE does not impose corporate taxes except on specified activities of foreign companies), there are taxes imposed on dividends and profits / gains earned from investments / operations in other countries.

However, in order for foreign governments to be considered sovereign immune from tax in another country, local tax laws in the investee countries must contain specific provisions to provide the exemption. Different countries have taken different approaches to granting sovereign immunity from tax. We consider below the position in key investment markets such as US, UK, France, and Germany.

Obtaining tax credit With no formal mechanism of obtaining tax credit for these foreign taxes, GCC based SWFs in particular need to consider the impact of tax exemptions available in foreign countries while deciding whether or not, or how to make investments in foreign countries. Where tax exemptions do not exist, other tax planning structures will need to be considered.

Exempt income under Section 892 generally includes current income and capital gains from US stocks, bonds, securities and financial instruments. Not exempted is however, income that is derived from commercial activities, received from a commercially controlled entity (CCE) (determined by reference to 50% direct or indirect interest by vote or value), or derived from the disposition of an interest in a controlled commercial entity. Regulations have

Even with corporate taxes steadily reducing in most countries globally, withholding taxes and taxes on operations and gains can vary between 5%-35% for investments outside of GCC countries (GCC countries do not tax governments and corporates of other GCC countries).

34 April 2013

In this article, we discuss the concept of Sovereign Immunity from taxes available in certain countries, and issues emanating there from relevant for SWFs.

US â&#x20AC;&#x201C; Section 892 exempts certain qualifying income of foreign governments from US federal taxation (foreign government for US tax purposes includes wholly owned and controlled entity of a foreign sovereign).

KPMG 40Th ANNIveRSARy

disclosing key constitutional documents and governance information to the tax authorities, which SWFs may consider as privileged information.

Double tax agreements France – Under French domestic law, foreign states benefit from an exemption from French tax only on dividends, interest and capital gains on the sale of French real estate or shares in French companies. Not eligible to exemption are royalties, commercial income, or rental income from French real estate. Taxes on such income may be relieved under applicable double tax agreements. There are also conditions relating to seeking prior ruling from the French Ministry of Finance to obtain the exemption where foreign government controls a French company by virtue of the investment. been proposed for cxceptions for inadvertent commercial activities of a controlled entity.

Income tax treaties This sovereign exemption is particularly important for Middle Eastern sovereign wealth funds because no Gulf Cooperation Council countries have entered into income tax treaties with the US. UK – In the UK, all income and gains that are beneficially owned by the head of the state or the government of a non-UK sovereign state are generally exempt from tax under sovereign immunity rules. The sovereign immunity only applies to direct taxes, and the non-UK foreign government will continue to be liable to indirect taxes such as VAT and stamp duty / stamp duty land tax. While the guidance is not explicit as far as exemption for commercial income is concerned, Her Majesty’s Revenue and Customs (HMRC) does consider both commercial and passive income to be eligible for sovereign immunity.

Unlike the US, the UK does not grant sovereign immunity to an entity owned and controlled by the foreign government. For legal liability reasons, SWFs will therefore need to consider appropriate structuring through tax transparent but legally separate entities (such as certain unit trusts and limited partnerships with separate legal liability) in order to preserve sovereign immunity but also manage its legal liabilities, particularly in joint venture structures. Sovereign status is not automatic from a UK perspective, and would need to be confirmed on application to the UK authorities. This will entail

$5.7 tn Worth of global assets under sWf, as at March 2013

Germany – Germany does not provide for any tax exemptions to foreign governments (or entities controlled by foreign governments) under its domestic tax rules. As such, any German sourced income earned by foreign governments from investment or commercial activities are subject to German corporate tax.

However, subject to conditions, a foreign government may be eligible to exemption or relief under German domestic rules or double tax treaties, as may apply to German corporations or other qualifying entities eligible to treaty relief. Reduced rate of taxation Where domestic tax rules do not provide for specific exemption, sometimes double tax treaties may provide for exemption or a reduced rate of taxation to certain types of income earned by a foreign government from the source country.

As double tax treaties are bilateral agreements agreed between two countries, these terms are generally agreed as part of the treaty negotiation process between the two foreign governments on a reciprocity basis. Any SWF investing in a country

In order for foreign governments to be considered sovereign immune from tax in another country, local tax laws in the ‘source’ country must contain specific provisions to provide the exemption.

KPMG 40Th ANNIveRSARy

that does not provide for sovereign immunity must therefore seek appropriate tax advice to evaluate whether there are planning opportunities or reliefs available under tax treaties.

efficient, and may even allow SWFs to bid for assets with more attractive pricing, given the comparative benefit of more attractive post tax returns, as compared to a private equity or non-sovereign investor.

More attractive pricing Where sovereign immunity exemption from taxes are available, the investments do become more tax

In an era of increasing scrutiny on tax structures, SWF given their status, in particular need to assess their tax status and structures to ensure that any exemptions and planning are carried out in accordance with domestic law and internationally accepted tax structures and practices.

To summarise, SWFs must consider the specific domestic tax rules to evaluate whether their income from investments or activities in the relevant country will be eligible to sovereign immunity, and the approvals etc that may be necessary in order to avail of such exemption. They may also need to provide detailed disclosure of their charter documents and governance structures to the foreign governmentâ&#x20AC;&#x2122;s tax authorities in order to be granted the approvals. SWFs will need to consider this aspect in light of confidentially issues.

Where sovereign immunity is not available SWFs need to consider tax planning structures and identify / commit resources to managing tax compliance functions. Some SWFs either have or are considering building formal tax teams sitting with their legal or finance function that monitors the tax issues and structuring relating to investments made by SWFs.

Summary of Sovereign immunity ruleS in key countrieS

36 April 2013

country

Sovereign immunity available

active / Passive income

available for controlled entities

comments

Yes

Passive

Yes

no exemption available for commercial activities, income received from CCe or income from sale of shares / interest in a CCe. however, exemptions proposed for inadvertent breach.

Yes

Passive certainly. Commerical income arguably also covered

approval required from hMrC confirming sovereign status

France

Yes

Dividends, interest, capital gains; not eligible to exemption are royalties, commercial income or rental income from real estate

Generally not available

French Ministry of Finance approval required where foreign government controls a French entity by virtue of investment.

Germany

Yes

n/a

tax treaty relief may be possible

KPMG 40TH ANNIvERSARy

TALENT ARCHITECTS Reyana Menzel, KPMG’s Head of HR and Learning on the unique programmes the firm has initiated in recent past to stay ahead of the curve…

PMG PROVIDES Audit, Tax and Advisory services and Industry Insight to help organisations negotiate risks and perform in the dynamic and challenging environments in which they do business.

Reyana MenzeL Head of HR and LeaRning, KPMg

We operate smoothly across borders, we think ahead of the curve, we provide deep expertise and add value in a way that speaks directly to the priorities of our clients.

Attracting talent Graduate recruitment remains an identified priority for KPMG. It is an important objective to continue to develop programmes that can help differentiate KPMG member firms in the marketplace. Programmes such as the KPMG International Case Competition (KICC) help us win the 'war for talent' in the graduate space as organisations seek to identify and recruit those talented graduates who can help them grow and develop. KICC gives students and their teammates the chance to work on tough business problems. It comes as no surprise; we have been ranked second on Universum’s index of The World's Most Attractive Employers, based on the opinions of over 75,000 business students from top academic institutions in the world's leading economies.

standards. That means training that’s based on our business priorities reflecting real client needs in Audit, Tax and Advisory, to a globally consistent level of quality, accessible from one place.

KBS is structured to fit in with the way we work with a mix of different training delivery formats such as in-person classroom, virtual classrooms, online refresher courses, self-paced e-learning and web-based materials. At KPMG we emphasise that learning is not limited to what we learn through formal training. We learn through rapid feedback on how we performed a task or managed a client. Growing talent The Future Partner Programme is reflective of the long term approach KPMG takes towards building talent. This is a development path wherein Directors are assessed and mentored to build their financial and community capital to achieve ascension to Partnership. At the

Retaining talent KPMG Business School (KBS) delivers businessdriven curriculum that’s built to common design

KPMG has been ranked second on Universum’s index of The World's Most Attractive Employers, based on the opinions of over 75,000 business students from top academic institutions in the world's leading economies.

heart of KPMG's values is a commitment to the communities in which we operate, and the issues that affect them. That commitment is one of the enduring qualities of our people and our brand. It›s a core part of our ‘Employer of Choice’ strategy. And the way we express this commitment defines what it means to be part of KPMG. It is integral our partners demonstrate these values in action. 37

KPMG 40TH ANNIvERSARy

SHARI’A COMPLIANCE IN PRACTICE As investors increasingly seek a more safer and stable alternative to conventional banking, Muhammad Tariq gives a practitioner’s perspective to Islamic finance…

ECENT FINANCIAL crisis followed by Euro zone’s sovereign debt trauma and continued uncertain outlook for some of the world’s largest economies has served to reemphasise the need for a safer and a more stable alternative to conventional finance.

MUhaMMad tariq Partner, KPMG - Uae

In an attempt to fill this void, Islamic Financial Institutions (IFI’s), across the world, are making significant efforts to develop comparable financial products while retaining the deep commercial wisdom of Shari’a principles as well as the high ethical standards it espouses.

Recent announcements by His Highness Sheikh Mohammed bin Rashid Al Maktoum to set up an integrated platform for an Islamic economy in Dubai is clearly a step in the same direction. However, with the increasing complexity and volume of Islamic Financial products, there is growing concern among market participants, regulators and industry commentators that the IFIs need not only to be genuinely Shari’a compliant but also to be viewed as such. Risk of Shari’a non compliance Shari’a risks for an IFI emanate from an actual or perceived non compliance with an acceptable interpretation of the Shari’a. These risks are manifest in various ways and are broad in their emergence, occurrence and impact.

Shari’a compliance risks affect IFIs in all stages of their life cycle, starting from conceptualisation of Islamic instruments, followed by structuring 38 April 2013

the products, legal documentation, selling and market conduct, execution and implementation, recovery and mechanisms of dispute resolution, restructuring and renegotiations and lastly, accounting and disclosure. In order to address these risks, IFIs endeavour to develop a framework for Shari’a risk management. In some cases, Shari’a risk management is embedded within the IFI’s overall risk management framework, however, in most cases IFIs tend to deal with Shari’a risk separately.

This separation is mainly driven by human resource constraints and sensitivities around interpretational aspects of Shari’a guidelines.

There have been a number of research papers authored in the recent years, by academics as well as Shari’a practitioners, defining various approaches to managing Shari’a compliance risks. Most of these highlight the need for an internal as well as external assurance process.

Internal assurance over Shari’a compliance The approach most widely adopted currently is to establish independent bodies of knowledgeable agents. These bodies are usually internal to IFIs and part of its governance structures. They include Shari’a Supervisory Boards (SSB) and Shari’a Review units. SSBs consist of Shari’a scholars responsible to provide guidance and support to IFIs in all aspects of their Shari’a risk management. While Shari’a review units are usually manned by

KPMG 40TH ANNIvERSARy

individuals with certain knowledge of Shari’a as well as contemporary audit and compliance methodologies. Shari’a review units report to SSB on a pre determined frequency and support SSB in providing their annual Shari’a certification to IFIs.

Shari’a Supervisory Boards (SSB) While SSB members are revered by the community in their role as scholars, their position in the Islamic Finance Industry is not above scrutiny. Observations have been made about a few scholars holding a large number of Shari’a Board positions. Comments have also been made about a perceived conflict of interest when scholars provide advice to competing IFIs. Calls have been made to bring next generation of scholars on SSBs to train them as well as to improve accessibility of scholars to IFIs. In reality most of the above observations are a result of human resource constraint and rapid growth in Islamic Finance. Some jurisdictions have responded to the situation by introducing regulatory codes of conduct for SSB members. It is evident that with the phenomenal growth in the number of IFIs such codes of conduct are expected to become a necessity for all jurisdictions in the future.

Shari’a review units It is clear that there is a scarcity of qualified, trained and experienced resources to conduct Shari’a compliance work. Internal Shari’a review units are evolving continuously and going through the ‘learn as you go’ phase. This coupled with the absence of authoritative literature on Shari’a compliance review methodologies, including documentation, sampling and quality assurance standards; creates significant challenges for such units and SSBs. Absence of a universally / regionally accepted qualification for a reviewer is another impediment in the progress.

External assurance over Shari’a compliance While the use of SSBs and Shari’a review units provides stake holders with the much needed comfort, the need for independent and external reviews cannot be ignored. Centralised Shari’a Boards (CSBs) Some jurisdictions have used CSBs to compliment, support and supervise the work carried out by SSBs. CSBs are an important tool for standardisation of financial products. They also act as final arbiters for settling any Shari’a disputes. On the other

It is clear that there is a scarcity of qualified, trained and experienced resources to conduct Shari’a compliance work. Internal Shari’a review units are evolving continuously and going through the ‘learn as you go’ phase.

hand, there is also a view that CSB’s can potentially affect the SSB’s ability to innovate and provide practical solutions to IFIs. Further IFI’s operating in more than one jurisdiction may face challenges in dealing with different CSBs. Shari’a ratings and Shari’a indices External rating agencies can play a positive role in providing assurance over Shari’a compliance. Similarly, Islamic stock market indices like FTSE Global Islamic Index and Dow Jones Islamic Index, contribute towards better Shari’a governance for publicly traded IFIs.

External auditors Auditing profession in general is very well regulated and the robustness of their methodologies along with high documentation, sampling and quality assurance standards prepares them to play a significant role. However, external auditors need to develop a general understanding of Shari’a and specific knowledge of fatwa issued by SSBs or CSBs to be able to perform this task.

They would also need a regulatory push to take an active role in this space. Accounting and Auditing Organisation of Islamic Financial Institutions (AAOIFI) makes it mandatory for external auditors to look at Shari’a compliance aspects of the business and include comments in their report on the financial statements. However, the application of AAOIFI standards is limited to a few jurisdictions only.

Conclusion Compliance with Shari’a principles remains the cornerstone of each and every transaction undertaken by IFIs. Customers, shareholders, investors, board members and regulators are all very sensitive about Shari’a compliance. There are number of improvement opportunities and a right mix of internal and external assurance process can be used to provide peace of mind to all stakeholders. 39

KPMG 40Th ANNIveRSARy

TRANSITIONS

Abdul Wahab Al-Halabi addresses the issue of entry of young generation into family-run businesses and offers tips on how to separate ownership from management...

F abdUl Wahab al-halabi Partner, KPMG â&#x20AC;&#x201C; Uae

AMILY GROUPS are the backbone of the regional economy.

According to some estimates, family groups control over 90% of commercial activity within the GCC. Some of the most successful companies of the Arab world are run by families which started with a single entrepreneurial venture a few decades ago and grew into diversified groups and multibillion dollar conglomerates.

Many family groups in the region are currently transitioning to the next generation. According to some market participants, $1 trillion of wealth will be transferred to the next generation in the Middle East and North Africa (MENA) region over the next 5 to 10 years. The international statistics for succession are daunting: according to the Family Firm Institute, 70% of family businesses do not make it to the second generation and 90% do not make it to the third generation. Regionally, a fair number of family groups are still in their first generation but many well known firms have successfully transitioned to the second generation with children owning and running the business.

Some of the most successful companies of the Arab world are run by families which started with a single entrepreneurial venture a few decades ago and grew into diversified groups and multi-billion dollar conglomerates.

40 April 2013

According to the Family Firm Institute, 70% of family businesses do not make it to the second generation and 90% do not make it to the third generation.

Characteristics inherent to the region like the strong family ties, the patriarchal culture and the importance of the family name, along with the growth that the region has experienced in the last decades have created beneficial conditions for a more successful handover to the next generation than the international average.

There are only a few known cases of disputes and failures. Conf lict was resolved in the family and growth was supported by the healthy growth rate of the economy and the vision and guidance of the usually charismatic founder. In some cases the transition was implemented through a comprehensive succession plan but in others the transition has been based on trust and the de-facto will of the patriarch.

A changing landscape With a number of factors changing in the economic landscape, succession is an issue that family groups have to tackle in a coordinated and professional manner. As the GCC economies have become more mature, competition has grown, both from existing competitors and from new players allowing only the best to continue being successful. Growth will depend on the efforts a company makes in reorganisation, innovation and expansion. Additionally, as most regional families move from the second to the third generation, the number of family members increases and along with that the complexity of issues in succession.

KPMG 40Th ANNIveRSARy

Succession planning Effective succession is the most critical issue for any business and involves succession of ownership, management and leadership.

What drives a business down is a lack of vision, a lack of innovation and the lack of a mechanism to resolve conflict. Conflict can be pre-empted by establishing and implementing a family charter and corporate governance mechanisms that bring structure to the decision making process, operations and management.

Conflicts can be diminished if an appropriate framework is in place and resolved efficiently if and when they arise. The ideal framework depends largely on the structure of the family itself, the expectation of its members and the structure of the family business. No matter how complicated the needs of a family business are, solutions and structures can be identified to fit all needs and advisors can assist the family in the process.

Vision and innovation however depend on the stewardship of the organisation. In many cases the business fails because what drove the first generation leader is not in place for the second generation who might have different requirements and preferences. The vision of a family group can be altered; a family business, like the family itself, is a living and evolving structure but it cannot exist without vision. It is important for owners to realise that the business has a life of its own that transcends their life. Succession planning is not only taking care of the transfer of wealth from one generation another. It is making sure that the plan sets the right conditions for the business to grow and maintain its momentum.

Should the owners decide that the conditions are not right for the business to continue to grow, the best succession plan may be to divest and exit from the business partially or wholly through a sale or an IPO. But if the decision is made that the family business should be retained then it is important to put in place systems and procedures. Separating ownership and management Especially in family businesses, ownership and management are intertwined. The older generation often assumes that their children will be in the best position to run the business, with the eldest son being the typical example of the next leader.

The question that this article addresses is whether the appointment of external managers such as a non-family CEO can add value to the business and what are the conditions for effective separation of ownership and management.

Family or non-family CEO A key issue that determines this decision is whether the next generation has the willingness or the competency to manage the business. Would a non-family executive lead the company bet ter than family members? Or is there a structure combining both elements that can be institutionalised for the group?

$1 tn

Amount of weAlth to be trAnsferred to the next generAtion in menA region over the next 5-10 yeArs

In any case appropriate structures should be in place as to when and how a family member ascends to power and under what terms including tenor, compensation and exit. Even if a family group is run by a family member, the inclusion of non-family executives to the board adds tremendous value.

How external managers add value There are a number of reasons for which the appointment of external managers makes sense. Firstly, the introduction of non-family members to the board can add independence and agility to the decision making process.

Secondly, a non-family member of the management can bring certain professional skills and experience to lead the company through a difficult transition or to execute a task such as an IPO, an organisational restructuring or entry to new markets. Thirdly, the objectivity of a non-family member is valuable for a performance appraisal of the business without emotional burdens and change implementation.

Conflict can be pre-empted by establishing and implementing a family charter and corporate governance mechanisms that bring structure to the decision making process, operations and management.

KPMG 40Th ANNIveRSARy

Succession planning is not only taking care of the transfer of wealth from one generation another. It is making sure that the plan sets the right conditions for the business to grow and maintain its momentum. Fourthly, an external manager can bring new ideas to the business in terms of innovation. Last, an external CEO can be useful during a transition to the next generation and as a coach for family members.

Leadership and innovation Ultimately every family, as every business, will reach the point that it will be necessary to make difficult decisions. The best leader, internal or external, is the one who will have the ability to make effective tough decisions and execute them to drive the organisation to the next level.

Tough decisions are not only needed when a group experiences negative performance. In some cases, being a market leader can hinder innovation because companies are more likely to be tied to their current business models which have historically served them extremely well. Companies with market leading positions in the past failed to recognise change and prepare for it. A family CEO is even more inclined to do so while an external CEO can potentially rethink their strategy, understand their internal issues and reinvent their innovation strategies.

An organisation should ask itself whether it is open to new business models and customer segments, whether it is willing to set up dedicated entrepreneurial teams (even when new offerings can cannibalise existing business) and whether they can learn about and leverage the insights and innovation that comes from the outside. Inability or unwillingness to adequately address these issues can lead to failure. Alternative structures A structure where external managers with specific expertise for different business lines, 42 April 2013

all report to a family council or a board etc can provide the ‘best of both worlds’ where specialist managers with appropriate experience take charge of the day to day running of the business units but the family has overall responsibility for the combined business performance. Conditions precedent The separation of ownership from management can enhance professionalism, governance and innovation.

To maximise the value added and avoid pitfalls, owners need to ensure that their management shares their vision and values (integration with family culture), that management is properly incentivised to avoid the agent-principal conflict and that strong governance is in place.

Furthermore external managers need to be empowered to make decisions. Hiring the best people for the job and not giving them the power to implement their strategy in light of the group goals is a waste of time and resources. Communication with owners needs to be open and transparent.

A transition from a family to a non-Family CEO may be complex as it challenges the family status quo and patriarchal culture. Questions such as when and what to delegate to a non family member and how to incentivise the non-family management executive while preserving the family shareholding have to be addressed. An organisation will determine whether it would buy non-family talent or grow talent organically. There is no solution to fit all situations. In summary Separating ownership from management does not necessarily mean that a non family member runs the business but that there are mechanisms in place to identify the best persons to run the business – whether from the family or from outside [under a collective culture/or the family vision]. The answer will always lie in the details of the family structure, the nature of business and family values. There are multiple structures that can be created with careful advice for succession of ownership and management to suit almost every requirement. What is important is for family members to understand what they want and that there is no ‘one fits all’ solution.

KPMG 40Th AnnivERsARy

CULTURE CALL Charles Robson examines the role of soft controls in the development of an ‘Anti-Fraud and Misconduct’ framework in organisations…

chArles robson Director, KPMG - UAe

One of the key purposes of a Code of Conduct and Associated Anti Fraud policies is to articulate what behaviours are acceptable and which ones are not, from management and staff.

ANAGEMENT USUALLY may believe that their organisation is not vulnerable to fraud because the administration and staff are aware of the risks of fraud. There may be a plethora of anti-fraud policies and procedures and even perhaps training – but does this really translate into a reduced risk of fraud? Assessing the anti–fraud culture To under s t a nd t he ef fec t iveness of t he or g a nisat ion’s a nt i-f raud c u lt ure, you f ir s t have to under s t a nd which key c u lt ura l t ra it s det er mine how ef fec t ive a n or g a nisat ion is at prevent ing , det ec t ing a nd responding to f raud . The degree of effectiveness of these cultural traits is often referred to as ‘soft controls’. They are non tangible cultural controls that affect the behaviour of management and staff

44 April 2013

KPMG 40Th AnnivERsARy

and ultimately the ability of an organisation to combat fraud and misconduct.

Some academics t hat specialise in business et hics have g iven t he mat ter a g reat deal of t hought . One such ex per t is Professor Muel K aptein.

Professor Muel is a Partner in KPMG in the Netherlands and also a Professor in Business Ethics at Erasmus University in Rotterdam. In his recent book ‘Why Good People Sometimes do Bad Things’ he identifies seven major factors affecting culture in the workplace, as being of the utmost importance. Taking each factor in turn: I. Clarity Is it clear what behaviours are expected from management and staff? One of the key purposes of a Code of Conduct and Associated Anti Fraud policies, for example, is to articulate what behaviours are acceptable and which ones are not. Furthermore, guidelines are provided to management and staff concerning what they should do if they suspect wrongdoing.

However, are these policies clear? I have seen many an example of long-winded fraud polices which are written in ‘legalese’ or are simply too long. Policies and procedures should be simple and not over–engineered.

This applies equally to other areas of an organisation’s policy and procedure framework. If the procurement policies are not clear and simple, they are less likely to be adhered to. At a certain point more policies and procedures lead to fatigue – management and staff will not take the time to read or understand them all and they can become counterproductive. Therefore, it is important to understand what employees feel about the policy and procedure framework – to have the courage to take a step back and ask employees if they understand everything that is expected of them. II. Role Modeling This should be straight forward to understand – ‘a fish rots from head down’. The behaviour of each and everyone within the organisation is affected by what they see and what they perceive. If people observe that other people are speeding on the road (and getting away

with it) they are more likely to transgress themselves, the same is true in the workplace. In this regard, the perception regarding the behaviour and expectations of senior management is particularly important. This can typically be determined through anonymous survey.

III. Achievability Do management and staff have enough time and resources to realise their responsibilities? If a budget is set at an unachievable level, and this is obvious to the person being evaluated, he or she will not be motivated by it – quite the reverse in fact – performances will suffer. The same is true when considering the robustness of an internal control framework. When recently conducting a fraud investigation for a Middle East client, I was interviewing someone in the procurement function. When challenged as to why he had approved an invoice in the ERP system, he simply answered that he didn’t have the time to check each and every invoice, he did not have adequate supporting information in the electronic workflow to realise his responsibilities and furthermore he had simply pressed the ‘approve button’ because others had done the same. This is not uncommon. Organisations’ must therefore understand if the procedures are practical and if there is sufficient time, information and resources to enable those responsible to follow them.

IV. Commitment When management and staff are not committed to the organisation, they are far less likely to speak up if they suspect there may be a case of fraud or misconduct. Typically, when an organisation is going through a restructuring, morale is affected and intuitively, commitment drops.

When management and staff are not committed to the organisation, they are far less likely to speak up if they suspect there may be a case of fraud or misconduct.

KPMG 40Th AnnivERsARy

In organisations in which there is frequent face to face contact between colleagues and there is a significant degree of transparency, the temptation and perceived opportunities for fraud and misconduct are diminished. By way of illustration, one of my multinational clients which had three divisions would typically receive around 225 whistleblower complaints each year, 75 for each division. They announced their intension to sell (carve out) a division and during the nine month period during which that division was for sale, complaints dried up almost completely. For this reason, employee surveys, where management and staff are able to express their feelings anonymously, can play an important role in this regard. V. Transparency Transparency is the extent to which one can see the effects of their own behaviours and actions as well as the effects on the behaviours and actions of others. In organisations in which there is frequent face to face contact between colleagues and there is a significant degree of transparency, the temptation and perceived opportunities for fraud and misconduct are diminished. In this way, organisations which openly share and discuss individual and departmental performance measures are intrinsically less vulnerable to fraud and misconduct, provided that the performance measures are relevant and accurate.

VI. Openness The extent to which management and staff feel they can openly discuss feelings, transgressions and ethical dilemmas that occur in the workplace, affects the likelihood that fraud may be prevented, detected and properly investigated. Sometimes senior management feel that by stating publically that fraud is not tolerated, is sufficient. However, it is not simply about the message, but the manner in which the message is conveyed. To acknowledge that fraud may occur in the 46 April 2013

workplace and that not all situations are straightforward is important.

By way of illustration, some leading practice organisations, deploy so called ‘ethics lines’ which is not a whistle blowing channel (which is also of the utmost importance) to encourage staff to discuss ethical concerns. Crucially, management and staff should not feel that discussing these matters openly might adversely affect their careers or their relationships with their colleagues. There are however cases, in which management and staff may not feel that they can openly discuss a dilemma but instead require the confidentiality afforded by a so called ‘whistleblower channel’, in these cases the administration should have confidence that the matter will be professionally (and independently) investigated and that the ‘whistleblower’ will receive adequate protection from retaliation. VII. Enforcement Last but not least, there needs to be a perception that fraud and misconduct does not go unpunished (and that the punishment is consistent and commensurate with the level of severity).

When people perceive that known transgressions go unpunished or that the punishment is minor, this may translate into apathy. For this reason it is important to pursue cases of egregious fraud through to the courts and not simply try to settle or ‘sweep the case under the carpet’ due to concerns about publicity, reputation or even cost. In other words, sanctions need to be seen to be applied to deter others. From an anti-fraud culture perspective, there is little more corrosive, than the perception that fraud and misconduct goes unpunished. Way Forward Taking these factors into account, KPMG has been helping a number of leading practice organisations examine ways in which they can both measure and improve, their soft controls. These organisations all have one thing in common – a clear understanding that they must go beyond simply producing policies and procedures but instead linking at their soft controls, which ultimately contribute far more to their anti-fraud culture than policies and procedures alone.

CMY

CArEEr DEvElOPMENT

IMA EXPANDS STUDY CONTEST Initially only open to UAE students, competition now welcomes entrants from KSA, Egypt, Jordan and Qatar...

HE INSTITUTE of Management Accountants (IMA) Middle East is expanding its highly competitive Case Study Competition for college and universities regionally. Initially open only to UAE finance and accounting students, the competition is now accepting submissions from Saudi Arabia, Egypt, Jordan, and Qatar. Abu Dhabi University was selected by an esteemed panel of judges to win IMA’s first Case Study Competition last year. “There was massive interest in the case study competition last year. We in fact received submissions from college and universities outside the UAE, but had to focus on the Emirates in the first staging of the competition. Following it success, we are now accepting entries from four new countries, making the competition even more competitive and adding further to its prestige,” said Jim Gurowka, CAE, IMA vice president International Development. In addition to the success of the Middle East Case Study competition, Gurowka noted that IMA has

CASE STUDY: The IMA competition, which provides the opportunity of addressing real-life scenarios, enables students to formulate solutions to real case business situations and acquire strategic management skills.

48 April 2013

experienced rapid growth last year with the adoption of global programmes and the implementation of student membership activities around the world.

“This year we have Ernst & Young, Federal Foods, Morgan International and Emerge Management Training Centre who are proud to be associated with the case study competition,” Loutfi K. Echhade, MENA Family Business Centre of Excellence Leader at Ernst & Young, said. “We are honoured and pleased to be a part of a professional competition organised by the IMA that aims to encourage thought process, skill development and creative problem solving approaches amongst students aspiring to be future industry leaders,” he added. The competition, which provides the opportunity of addressing real-life scenarios, also enables students to formulate solutions to real case business situations and acquire strategic management skills.

“We see this as a key learning milestone in their journey to hold future leadership positions in the world of business and commerce,” Loutfi said.

Free IMA student membership In this year’s competition, the winning Case Study Team will receive $4,000 and the runner up team $2,000. In addition, the winning team members will receive a free IMA student membership, discount on the CMA entrance and examination fee, discount on CMA training, and an internship in a prestigious multinational organisation. Each campus of any college/university is eligible to select a team(s) of three to five members to determine the best solution for the management accounting Case. No more than 50% of team members may be Master’s Degree candidates and no Doctoral Degree candidates may be selected. Although faculty members are encouraged to promote this competition on their campus, no faculty or other professional assistance is allowed in solving or presenting the case. * Entries must be submitted on or before April 15, 2013. Four finalists will be selected and notified no later than May 31, 2013. Students who wish to participate may download the competition rules and regulations as well as 2013 Case Study material at www.imamiddleeast.org. Organisations interested in becoming involved in the competition as sponsors may get in touch with us on +971 800 IMA ME (462 63).

CArEEr DEvElOPMENT

PWC rOllS OUT MINI MBA Intensive programme aims to offer entrepreneurs knowledge and skills without the rigours of time and cost obligations experienced with traditional MBAs...

63%

proportion of CEos basEd in thE MiddlE East who sEE talEnt Constraints as a potEntial risk

AX, AUDIT and assurance firm PwC has launched its unique Mini Masters in Business Administration (MBA) Programme in the UAE.

Set to commence on April 20, 2013 at the PwC’s Academy, the organisers say the programme is the ideal solution for professionals, business owners and entrepreneurs seeking the knowledge and skills gained from traditional MBA programmes, without the extensive time and cost obligations. Leveraging its global leadership position in a full range of professional services, PwC has drawn industry leading professionals from its extensive network to present the programme. The Mini MBA Programme instructors in the UAE possess an indepth understanding of the complexities of modern organisations and have experience in leadership positions, subject expertise, and knowledge of the local and global business environment.

Customised professional course The Programme offering comes in light of a PwC 15th Annual CEO survey revealing that 63% of CEOs based in the Middle East see talent constraints as a potential risk to their growth and 33% have placed talent development as their top priority. As such, PwC’s Academy has incorporated the insights

PwC’s first Mini MBA Programme will run from April 20 to June 29 2013 at the UAE Academy campus in Abu Dhabi, with plans to expand the offering across the region.The sessions will take place over a 3 month period with over 100 classroom hours.

Amanda Line, Partner, PwC’s Academy Middle East: “Our goal is to contribute to the development of leaders and to hone the talents of the workforce in the UAE.”

gained from working with firms from all over the globe into the Mini MBA Programme.

This customised professional course covers the most important topics of an MBA such as leadership, management skills and problem solving in the fields of project management, finance functions, corporate strategy and human capital.

Development of leaders On the launch of the programme Amanda Line Partner, PwC’s Academy Middle East said; “The diversity of the UAE workforce means that leaders must be particularly skilful in communicating, empowering and leading people from an array of backgrounds. Our goal is to contribute to the development of leaders and to hone the talents of the workforce in the UAE.”

“Although the higher education system in the UAE is highly developed there is still an attraction to the top global MBA programmes abroad. With this in mind, PwC’s Mini MBA Programme combines global experience with local insight, thus providing candidates with a convenient solution to continued executive education,” she added. PwC’s first Mini MBA Programme will run from April 20 to June 29 2013 at the UAE Academy campus in Abu Dhabi, with plans to expand the offering across the region. The sessions will take place over a 3 month period with over 100 classroom hours. To accommodate working schedules, courses will be conveniently held on Saturdays and Sunday evenings. 49

FROM THE EXPERTS

WHATâ&#x20AC;&#x2122;S IT GOT TO DO WITH ME? In this first series, Matthew Gamble, the Head of Anti-Money Laundering at DFSA, explains why accountants and auditors need to be aware of what is happening in the Money Laundering, Terrorist Financing and Sanctions world...

MattHew gaMbLe Director, SuperviSion anD HeaD of anti-Money LaunDering, Dubai financiaL ServiceS autHority

CCOUNTANTS AND auditors are interesting people, however, by their very nature they are analytical and logical.

Everything in life can be seen in the light of a cost benefit analysis and statement of financial position. Everything should be categorised and placed in an identifiable and retrievable place, not unlike a chart of accounts.

However, the world is unfortunately not as well ordered and logical as accountants would prefer. Most accounting degrees cover the essentials to make an excellent accountant/auditor, but when it comes to financial crime relating to money laundering, terrorism financing or sanctions, tertiary studies are only catching up.

It is no wonder that to the majorit y of accountants and auditors the question arises as to why they should be concerned with such things. Before I go into the reasons of why they should, a refresher is needed. 50 April 2013

FROM THE EXPERTS

A short and abridged history lesson in the development of AntiMoney Laundering (AML), Combating the Financing of Terrorism (CTF) and Sanctions Milestones Financial Action Task Force ( established 1989) Vienna Convention – regarding narcotics (established 1990) Strasbourg Convention – regarding confiscation of the proceeds of crime (established 1990) Palermo Convention – regarding trans-national organised crime, including trafficking in persons and human smuggling (established 2000) Merida Convention – regarding corruption (established 2003) UN Security Council Resolutions Nos. 1737 (2006), 1747 (2007), 1803 (2008) and 9129 (2010) – Iran No. 1267 (1999) and Consolidated List - Al Qaida and the Taliban No. 1373 (2001) – Designated Terrorists The Financial Action Task Force (FATF) an inter-governmental body was established in 1989 by the Ministers of its Member jurisdictions. The objectives of FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is, therefore, a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. FATF released its latest set of Recommendations in February 2012 (known as the 40 Recommendations) that deals with money laundering and terrorism financing. It is incumbent on each country or jurisdiction to implement the 40 Recommendations.

The conventions and resolutions referred to above under the Milestones heading are all UN instruments. From the titles of these conventions you can see a pattern of an ever expanding universe see money laundering offences (refer to Article 2(2) of the Federal Law No. 4 of 2002 above). To me, it seems a natural progression that tax evasion will be included soon. In fact, FATF in its latest recommendations has recommended that this should be included as a money laundering offence in a country’s money laundering legislation. This was also recently mentioned at the G8 conference. As I said above, there truly is a convergence of three areas and accountants will have their work cut-out for them in order to be across them.

ILLICIT: Money Laundering is the “processing of criminal proceeds to disguise their illegal origin.”

What is Money Laundering? Money Laundering is the “processing of criminal proceeds to disguise their illegal origin.” The process is of critical importance to a criminal enterprise as it enables the criminal to enjoy profits without jeopardising their true source.

The activities of organised crime, including, for example smuggling, drug trafficking and human trafficking can generate huge amounts of proceeds. Embezzlement, insider trading, bribery and computer fraud schemes can also 51

FROM THE EXPERTS

CRIMINAL: Terrorist financing is the act of directly or indirectly, unlawfully and wilfully, providing or collecting funds with the intention that they should be used or in the knowledge that they will be used to carry out an act of terrorism.

produce large profits. These illegal acts create the incentive to legitimise the ill-gotten gains through money laundering. When a criminal activity generates substantial profits, the individual or group involved must find a way to control the funds without attracting attention to the underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form or moving the funds to a place where they are less likely to attract attention.

With respect to the United Arab Emirates, Article 2 of the Federal Law No. 4 of 2002 titled â&#x20AC;&#x153;Criminalisation of Money Launderingâ&#x20AC;? makes any person guilty of money laundering if that: (1) person intentionally commits or assists in commission of any of the following acts in respect of Property derived from any offences stated in Clause (2) of this Article, such person

52 April 2013

shall be considered a perpetrator of the Money Laundering offence: a. The conversion, transfer or deposit of Proceeds, with intent to conceal or disguise the illicit origin of such Proceeds. b. The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of Proceeds. c. The acquisition, possession or use of such Proceeds. (2) For the purposes of this law, Property shall mean those derived from the following offences: a. Narcotics and psychotropic substances. b. Kidnapping, piracy and terrorism. c. Offences committed in violation of the environmental laws. d. Illicit dealings in fire-arms and ammunition. e. Bribery, embezzlement, and damage to public property. f. Fraud, breach of trust and related offences.

FROM THE EXPERTS

GROUNDED: A sanction is the imposition of ‘economic warfare’ upon a country, individual or corporate entity, to bring about obedience.

g. Any other related offences referred to in international conventions to which the State is a party. What is Terrorist Financing? Terrorist financing is the act of directly or indirectly, unlawfully and wilfully, providing or collecting funds with the intention that they should be used or in the knowledge that they will be used to carry out an act of terrorism.

Terrorism is defined as an act intended to cause death or serious bodily injury to a civilian, or any other person not taking part in armed conflict, when the purpose of the act is to intimidate a population or compel a government or international organisation to do or to not to do certain acts. The same techniques used by a money launderer are attractive to terrorist financiers who seek not only hide or disguise their own involvement, but the identities of those committing acts of terrorism. Terrorist financing also applies not

Most accounting degrees cover the essentials to make an excellent accountant / auditor, but when it comes to financial crime relating to money laundering, terrorism financing or sanctions, tertiary studies are only catching up. only to acts of terrorism but the funding and supporting of terrorist organisations.

With respect to the United Arab Emirates, Federal Law No. 1 of 2004 titled “Criminalisation of Terrorism Financing” has been enacted and deals with offences relating to terrorism financing. What is a Sanction? The sanctions considered within this paper have been likened to economic warfare. It is the

FROM THE EXPERTS

imposition of a country’s or group of countries’ will (that is, United Nations (UN) sanctions) upon an individual or corporate entity, or even a country to bring about obedience. It is effectively the use of the ‘carrot and stick approach’. You obey and you will not be punished.

The United Nations Security Council has issued many sanctions concerning issues related to North Korea, Libya and Iran to name a few. The effectiveness of UN sanctions is that all countries that are part of the UN must ensure that its citizens and residents comply with them. Apart from UN sanctions, there are numerous other sanction regimes, such as those issued by the Office of Foreign Assets Control (OFAC) (which is an agency of the United States Department of the Treasury), European Union, and HM Treasury. While many choose to ignore these other sanction regimes they do so at their own peril. Individuals and firms have been placed on lists these other sanction regimes maintain and have suffered huge reputational damage that have led to economic loss.

Convergence Money laundering, terrorist financing and sanctions each started out on their own but over time there has been a convergence. You now have a growing body of risk with three distinct heads. I like to use Greek and Roman mythology to describe it. In these mythologies, there was Cerberus which was a three-headed dog that guarded the gates of the underworld (hell) to prevent those who have entered it from ever escaping.

I liken money laundering, terrorist financing and sanctions to Cerberus, each working separately but sometimes also in unison. To deal with each individually and together, one must understand the risk that each head poses both separately and combined. Why does it apply to accountants? Money launderers and terrorist financiers are continuously looking for new methods of disguising their funds; they will actively seek to exploit weaknesses in AML systems and controls and will gravitate to countries and financial systems with weak or ineffective controls.

Importantly, it is not just the financial sector which is at risk of being misused by money launders and terrorist financiers. The nonfinancial sector (Designated Non-Financial 54 April 2013

Businesses and Professions (DNFBPs)) which includes accountants, lawyers, jewellers, dealers in high value goods, real estate developers/ agents, and company service providers are also vulnerable to attack. FATF included DNFBPs in its recommendations as they are seen as gate-keepers to the financial system. An extract from The Puppet Masters explains why they need to be included: Billions in corrupt assets, complex money trails, strings of shell companies and other spurious legal structures. These form the complex web of subterfuge in corruption cases, behind which hides the beneficial owner—the puppet master and beneficiary of it all. Linking the beneficial owner to the proceeds of corruption is notoriously hard. With sizable wealth and resources on their side, they exploit transnational constructions that are hard to penetrate and stay aggressively ahead of the game. Nearly all cases of grand corruption have one thing in common. They rely on corporate vehicles legal structures such as companies, foundations, and

FROM THE EXPERTS

trusts to conceal ownership and control of tainted assets. Accountants and auditors are in a unique position when it comes to complex legal structures. These structures cannot be created without the creativeness of accountants nor can their activities be hidden from a professional inquisitiveness of an auditor. FATF recognised this and included accountants and auditors in DNFBPs.

Money launderers and terrorist financiers are continuously looking for new methods of disguising their funds; they will actively seek to exploit weaknesses in AML systems and controls. Now, with the concerted effort to include tax evasion as a money laundering offence accountants and auditors will only become more involved as their expertise is required.

In my next part, I will talk about the following matters and how they impact upon accountants and auditors both globally and regionally: The risk-based approach Systems and controls Money laundering reporting officer Customer due diligence on customers and business partners Beneficial owners Politically exposed persons Training Suspicious activity reports What does the future hold?

CONVERGENCE: Money laundering, terrorist financing and sanctions each started out on their own but over time there has been a convergence. You now have a growing body of risk with three distinct heads.

Conclusion In this first part, Part 1, the intention was to provide you with an understanding of these risks and why we have got to where we are now. In the second part, I want to explore what I believe a prudent accounting / auditing firm would implement to meet its obligations. What started out as a means to stopping crime primarily related to drugs and narcotics has now evolved into a complex web of interrelationships. These complexities surrounding money laundering, terrorist financing and sanctions are in the words of Lewis Carroll are only going to become curiouser and curiouser.

Disclaimer: Any opinions, statements or other information or content expressed or made in this article are those of the author and not the DFSA, and the author's opinions, statements or other information or content expressed in this article should not be viewed as any indication of the opinion, view or policy of the DFSA.

Personality & Practice

taKinG cHarGe

Recently the UAE Internal Audit Association, the local body affiliated to the Global Institute of Internal Auditors, announced the appointment of Kevin Rafiq as a new Chief Executive Officer. Kevin is responsible for providing direction and supervision to the committees of the association, as well as helping in the development of the associationâ&#x20AC;&#x2122;s strategies and policies. In an exclusive interview with Joyce Njeri, the CEO outlines his plans to steer the association to the next growth phaseâ&#x20AC;Ś 56 april 2013

Personality & Practice

You were recently appointed CEO of UAE’s Inter nal Audit Association. As the body works towards increasing its influence over public policy, what value do you as a person bring to the Institute? The value that I bring into the loc a l or g a n i sat ion i s t hat of an internat ional perspec t ive, coming from the global body of the Institute of Internal Auditors, where my previous charge was to oversee the expansion of the Global Institute in different countries.

I also bring a global vision that will help the board of the UAE’s IAA increase its visibility which we have already started seeing – as we are getting credit from the Global body about our accomplishments in the country. similarly, my vision for iaa is alligned well with the value and objectives that the board has set for itself. I believe it [board] takes a lot of credit for bringing a small organisation that just two years ago, had less than 400 members, to over 1,700 members currently registered. Failure to manage risk in organisations would be catastrophic. In your opinion, why is internal auditing in the UAE so important?

Whether in the UAE or anywhere else, the work of internal auditors cannot be gainsaid. Let me just give you an example. Our organisation here in the UAE started off small, and has grown in leaps and bounds for the last two years. As I mentioned earlier we had less than 400 members about two years ago and have grown to almost about 1,700 members today. If we don’t manage risk carefully in the way we grow, we’ll find ourselves in trouble a year from now. When we consider how things happen, we often frame them in terms of the three key elements of people, processes and systems. However, when it comes to the control environment and the risk framework, the people element is often overlooked and not viewed to be as core as the more tangible elements of the risk and control framework such as business processes and systems. So managing risk is very important to any organisation whether it’s for profit or government or non-profit entity. We need to make sure that we keep the momentum and desire to grow in organisations with the

The ability for an organisation’s risk management framework to handle volatility coupled with a consistent risk culture is the fundamental attributes of today’s forwardthinking organisation. realities of that growth. Internal audit is very instrumental in making sure that it presents the right idea and picture of how you should grow as a company vis-à-vis the risks that are presented in your area. What’s the relationship between external and internal audit?

The IAA Global came up with a framework that is called the ‘three lines of defense’. The reason why we call it defense is because the model has greatly helped organisations to adapt to the new norm of market volatility and uncertainty, particularly as pressure for greater levels risk reporting increased. These ‘three lines of defense’ models focus on providing assurance within business units while at the same time providing assurance to senior management and boards that controls and processes are operating as intended. Concurrent to this is an increased focus on ensuring that organisations speak the same ‘risk’ language especially as they restructure themselves to better deal with managing the new norm of volatility.

The goal is to make profits for the stakeholders however, in order for those stakeholders to get profits from the organisation, the management needs to manage the risk. So the first line of defense for managing risk is the internal audit. Being the primary responsibility of audit, it brings the value of ‘traditional’ risk management in providing assurance or monitoring activities within the organisation. Internal audit is actually someone who is employed in the organisation, someone who’s familiar with how the organisation operates. External audit is the next line of defense. It’s an entity that is outside of the organisation that comes in and provides credence to whatever the internal audit has managed to

1,700

Current aCtive members of the uae internal audit assoCiation 57

Personality & Practice

do as far as risk is concerned. In recent past however, we have seen that cost pressures in organisations have forced the need for leaner and more effective teams, and this has also meant that these organisations have had to become smarter in how they provide assurance and what they provide assurance on. This has meant the desire for assurance to be built into the first line or operational processes so that the second and third lines can focus on providing ‘re-assurance’. Risk management policies should therefore be viewed as complementary to business policies rather than parallel. So we look at internal and external audit as complementary partners. Organisations have traditionally relied on the services of external auditors, consultants or management advisors as assurance providers. Ironically, a recent study poured cold water on the reliability of external auditors to detect occupational fraud, stating that most cases of fraud are first reported by employees. What’s your take on this?

Ultimately, it is more important that an organisation understands its risks, its approach to risks and how they are being monitored and measured. It is of uttermost importance for an organisation to add value to how its risk is managed by creating some effective assurance to the management to continue operating the company on profit basis. So I don’t think that external audit should be excluded from the business. However, just to distinguish the two, not all organisations can afford the services of external audit and the cost associated with it. When you have a small organisation, a strong internal audit can manage itself. The other difference is that when an organisation is a public organisation - basically been traded on the market - the shareholders require the opinion of the external auditors. Therefore I would never exclude the value of the external audit.

If you recall the infamous scandal of Enron, and the issue of external auditors who did not really do a good job in ensuring they notified the shareholders, they went out of business because they did not do what they were supposed to do. All in all, external and internal auditors are the layers of security in organisations. 58 april 2013

The aftermath of the global financial crisis has forced internal audit departments to reflect on their role, focus, contribution and size and how these should evolve in the future. How in your opinion, should the internal audit function evolve to better serve the needs of companies in a costefficient way in the future? We need to look at this from two different perspectives. As internal auditors we like to look at ourselves as value partners to the management. Post the global financial crisis, organisations are increasingly facing challenges especially under pressures of regulatory and cost scrutiny. This has resulted in many companies now considering change in business operations, compliance and risk management. Companies have taken to understanding the need for a holistic view of risk across the business and therefore risk IN THE SPOTLIGHT: I think the financial crisis of 2008 was really working towards our advantage because it highlighted the value that internal auditors play in organisations.

Personality & Practice

management now has a more prominent focus on board and executive agendas than before.

I think the financial crisis of 2008 was really working towards our advantage because it highlighted the value that internal auditors play in organisations, and it made management aware that we are really not ‘a cop’… here to find errors and mistakes, but rather, we are here to uncover certain risks that may create a bigger problem for the organisation. So the economic slowdown allowed the internal auditors to get into the spotlight. It also showed that as auditors, we need to do a better job and ensure security to our stakeholders and organisations. Controls detecting and preventing fraudulent behaviour, for instance hotlines and whistleblowing have become crucial in organisations. In your opinion, should

The first line of defense for managing risk is the internal audit. Being the primary responsibility of audit, it brings the value of ‘traditional’ risk management in providing assurance or monitoring activities within the organisation. fraud controls be included in the day-to-day internal controls in the business? It should but it’s not the job of internal auditors. Just so we make this clear, the internal auditor is not the fraud examiner, he’s not the cop, we are value-added partners that manage risks and inform the management about the risk.

However, as we do our job as auditors and we uncover alleged fraud or malpractices or potential for fraud, we highlight that in our report to the management and it is the management’s prerogative to probe it through other channels like the investigators. The abilit y for an organisation’s risk management framework to handle volatilit y coupled with a consistent risk culture is the fundamental attributes of today’s forwardthinking organisation. According to a recent report authored by Deloitte, the added value of the Internal Audit function in 2015 will more and more be determined by its ‘impact’ on the organisation. What would you say is the one skill the internal auditor should focus more on in the future? On the same note, do you think it’s necessary for internal auditors to specialise in particular fields?

CAREER HIGHLIGHT: “The good thing about being an accountant is that one can work across all sectors of the economy, not just in financial services,” Ahmad says.

I do agree with the [Deloitte] report. Let me give you a little history about internal audit. Back in the 1920s the focus was mainly on detecting fraud and then we evolved into doing other things. As internal auditors, we mainly dealt with it from the accounting and finance point of view, but now we have moved to the entire operational cycle including marketing, human resources, IT among others. Internal auditors come from all kinds of fields and they have a say in all the systems that make up an organisation. What we focus on is what the organisation requires us to focus on. 59

Personality & Practice

ALLIES: As internal auditors we like to look at ourselves as value partners to the management.

Ideally, we would like internal auditors to specialise and thatâ&#x20AC;&#x2122;s why the Global Institute of Internal Audit tries to attract people into the profession from all kinds of fields, including software engineers, who are the best to identify the risk in, for instance, IT.

We always rely on specialised people in the field to help us do the internal audit function. So if you look at the current members of the Global IAA, they are representing all kinds of skill set from different fields. Why is it important to gain a qualification as an internal auditor?

It is of uttermost importance for an organisation to add value to how its risk is managed by creating some effective assurance to the management to continue operating the company on profit basis.

60 april 2013

The CIA, which stands for Certified Internal Auditor, gives instant recognition and credibility. Simply put, the certification of internal auditor is important because of its global recognition, which means that one can practice from anywhere in the world. One is instantly recognised to have ethical qualifications as required by the standards of the profession; he knows how to prepare audit plan, conduct the audit, report to management, and knows how to function with the management and the top executive. Therefore the certification is evident that one is qualified in this area. On a personal level, my professional experience spans the fields of international business, marketing, customer service, leadership training and development, strategic management and partnership development. I have led the implementation of highly visible projects in the US, including for NASA, GSA, DoD and DoED. I am a Magna Cum Laude graduate, with a Bachelors degree of Science in Business Administration from Strayer University-USA, and an MBA in International Management from the University of Maryland-USA.

ROBERT HALF ROBERT HALF FINANCE FINANCE Job title CFO

AND ACCOUNTING AND ACCOUNTING SALARIES SALARIES Size of business S/M

Assistant Treasurer Finance Manager Senior Finance Associate Tax Director Tax Manager

Senior Financial Analyst Financial Analyst Compliance Director Compliance Manager Compliance Officer

S/M

Large

S/M

Large

S/M

Large

S/M

Large S/M

S/M Large Large Large Large

S/M

Large

Large Large

Large

S/M S/M

Senior Tax Associate

% Change -

S/M S/M Large

Treasurer

S/M Large Large

Financial Controller Assistant Financial Controller

(in USD) (in USD)

Large

Finance Director Chief Accountant

roberthalf.ae 2013 Salary Guide |

Robert-Half-AME-UAE-Salary-Guide-Ad-AW.indd 1

ARABIC ACCOUNTING SYSTEM

TrusTed Performance abiliTy aT work daTa securiTy and sTabiliTy daTa TransParency www.bazarsoft.com

29/01/2013 12:16

CORPORATE TREASURY

COVENANTS AND CONTROL Loan covenants may oblige borrowers to maintain a certain credit quality over the life of a loan. Will Spinney, Associate Director of Education at the ACT, explains…

OVENANTS DEFINE the credit quality of a borrower that he must maintain over the life of a loan.

If loans are made on demand, there is no particular need for covenants since the lender could just ask for its money back on the slightest concern or whim. Loans made for a term require a mechanism to allow the lender to intervene if the borrower’s credit quality falls below a certain level. Conceding covenants (and they do surrender some element of control to the lender) is the price that borrowers pay for enjoying term loans. Types of covenants There are two types of covenants in conventional loan documents: Things the borrower must not do, such as:

– Not subordinate the lender (meaning not to lower the lender in the queue for repayment following insolvency). This is called a ‘negative pledge’ and can come in several different forms; – Only make disposals, mergers, reorganisations, acquisitions, dividends or similar credit-changing events up to certain limits; and – Not change its business.

Qualities that the borrower must maintain, mainly comprising: – Financial covenants. 62 April 2013

Financial covenants can take several forms:

Coverage covenants, such as interest cover or cash flow-to-debt service ratios; Leverage covenants, such as debt ceilings or debt/ EBITDA or earnings ratios;

Current ratios, such as around working capital, although these are relatively scarce and often limited to certain industry sectors;

CORPORATE TREASURY

Net worth covenants, such as tangible or intangible net worth, which could be allied to a leverage covenant; and Capital expenditure limits. Some particular debt structures will have their own covenants. For example, project finance and infrastructure arrangements (which are typically long term) use a loan life coverage ratio, which discounts future cash flows to the project. There are many other possible provisions, but the above two types form the basis of covenants. Breach of a covenant will lead to a default event, which in turn allows a lender to ask for repayment of the loan.

Generally, the stronger the borrower, the less control is surrendered to lenders, and covenants are fewer and weaker. The investment-grade/ sub-investment-grade boundary is often seen as a dividing line between low and significant surrender of control. Bank loans usually have more covenants than bonds, except in the case of bonds for sub-investment-grade borrowers, that is, high-yield bonds.

An alternative approach The covenants described so far are examples of ‘maintenance’ covenants, meaning that

Covenants and the treasurer Treasurers must: Negotiate covenants so that they accurately reflect the business model and allow the borrower to operate. The borrower also needs flexibility to deviate slightly so that it can either take advantage of commercial opportunities or withstand some moderate weakening of performance; Direct the compliance process, ensuring that non-financial covenants are complied with across the group and that performance against financial covenants is properly forecast; and Lead the group if financial performance varies significantly from the defined covenants. If performance worsens, some re-negotiation might be required to avoid default. Equally, if performance improves, some pricing reduction or reduction of control might be possible. Talking Treasury Book your place now! talkingtreasury Abu Dhabi: Join the Association of Corporate Treasurers to discuss the hot topics and key issues for the year ahead. Starting with a networking lunch, don’t miss this opportunity to meet and share experiences with your peers. If you are a corporate treasurer book your free place now using the promotional code TTADMEACC. the borrower must maintain with the limits set by the An alternative approach is ‘incurrence’ covenants, which different way.

or comply covenants. seen with work in a

Here, if a borrower wants to undertake a certain activity, such as make a dividend payment, sell some assets, merge or reorganise in some way, or take on further debt, it can do so only if it passes a certain test/s. One test might be a debt/ EBITDA ratio, which allows more debt to be taken on if a ratio is passed (leading to the concept of ratio debt). These types of covenants are often referred to as ‘cov-lite’ and are associated with high-yield bonds.

Loans made for a term require a mechanism to allow the lender to intervene if the borrower’s credit quality falls below a certain level.

W hile the usual focus of compliance, or the process of ensuring that covenant tests are passed, is around financial covenants, there are many instances of borrowers taking steps to refinance because of a breach in a negative pledge clause caused by some corporate activit y. Compliance monitoring should therefore be around both financial and nonfinancial covenants. 63

FORENSIC AUDITING

KINGDOM KEEPERS

Sherif Saeed, the Audit and Investigation Manager at Mobily in Saudi Arabia, shares his views on the country's approach to whistleblowing and the dynamics of reporting occupational fraud…

HE WORDS ‘fraud’, ‘corruption’, ‘bribery’ and ‘kick back’ are sensitive subjects for discussion in general. It becomes even more sensitive when you introduce the topic in cultures where even the mention of this subject matter is a taboo.

ShErif SaEEd ExEcutivE ManagEr SpEcial audit & invEStigation – Mobily, Saudi arabia

Fraud exists in every country and every culture. The challenge is how to broach the subject without upsetting the audience. Once I was asked to evaluate a scenario for a country where the donor agency could not

64 April 2013

locate the infrastructure project which they had funded. The contractors got their money duly certified by the local project managers and absolutely nothing was done. I was asked to develop probable causes for the situation on the ground. When I suggested ‘fraud’ as one of the reasons behind disappearing money on non-existent projects, the representative of the local government in the risk evaluation committee vehemently objected to my suggestion. Implementing anti-corruption laws This only highlights the challenges that exist for professionals entrusted for fraud

FORENSIC AUDITING

and corruption investigations and managing associated risks. The first step towards managing fraud risk is creating and maintaining a control environment where open discussions can happen. The government and regulators play an important role creating this environment.

In the western cultures like USA and Eurozone countries, governments and regulators are much more aggressive on adopting and enforcing fraud risk management related regulations. The US government and regulators are most aggressive in implementing its anticorruption laws commonly referred as Foreign Corrupt Practices Act (FCPA).

There are other regulations such as Sarbanes– Oxley Act and Dodd Frank Act, introduced specifically to strengthen the hands of regulators in fighting corruption. The UK Bribery Act of 2010 is even more far reaching as it requires public and private entities to conduct proactive due diligence on 3rd party vendors to ensure corruption free business practices. Rest of the world is still on catch up mode.

Fraud in developed economies Most of the UN member nations are signatories to UN Convention Against Corruption (UNAC). However, many of the member countries are yet to adopt and implement necessary laws and other institutional infrastructures to fight corruption. Global surveys on corruption/fraud by Association of Certified Fraud Examiners (ACFE), Transparency International (TI) and other reputed organisations and consulting firms estimated that cost of corruption/fraud is as high as 5% to 6% of a company’s gross revenue.

US government’s survey on Medicare and Medicaid programme estimates total cost of fraud/corruption is almost 10% of its total programme revenue of $1 trillion. This is even after the US government has put elaborate programmes to identify and investigate incidences of fraud.

The above two ratios only highlight how prevalent fraud is in developed economies where there are necessary regulations,

Fraud exists in every country and every culture. The challenge is how to broach the subject without upsetting the audience.

awareness, tools and personnel available to combat fraud and corruption. We can only assume that this ratio will be much higher for countries where awareness of fraud and corruption is absent, regulations are at best vague, and resources to combat fraud and corruptions are scarce.

Inflated project costs The perpetrators of fraud are very much aware of these loopholes which they translate into opportunities for them. Some take advantage of these opportunities for their personal benefit in the form of bribe/ kickback or recognition within their respective companies for bringing additional business by corrupt means.

The company or individuals winning business through corrupt /fraudulent practices recover their so called ‘cost of doing business’ by inf lating their project costs to recover their ‘investment.’ On the other side the one favouring business through corrupt means has all the incentives to look the other way. This in turn translates into inf lated project cost and poor quality in the product and services delivered for the victim entities. The overall result is an aggregate loss for the country as a whole, not to mention its impact on the morale of the people involved.

Public and private entities have to have robust anti-corruption/fraud programme to fight corruption/fraud within their entities. There are three components of an effective anticorruption/anti-fraud programme, including; preventive, detective, and investigative. Anti-corruption/anti-fraud awareness campaign for employees and vendors, incorporating compliance with local and foreign anticorruption regulations in the contract clauses are examples of the Preventive measures of fighting corruption. Preventive method is often overlooked but most cost effective of all three anti-corruption measures, if done right.

proportion of estimated cost that corruption causes in a company’s gross revenue 65

FORENSIC AUDITING

Much attention should however, be paid to preventive measures such as the appropriate risk assessment, control activities including policies and procedures, and communication and training.

Taking corrective actions Detective method includes having a comprehensive whistleblower programme supported by related policies and procedures, running data analytics to detect fraud/ corruption red flags. The most expensive and also an essential method in fighting corruption and fraud within an organisation is to perform proper investigation of already discovered incidences of fraud and corruption by employees or third party vendors. Proper investigation of reported incidence of fraud/corruption and taking necessary

The first step towards managing fraud risk is creating and maintaining a control environment where open discussions can happen.

66 April 2013

corrective actions against the perpetrators is the strongest deterrence from the would-be fraudsters. Strong actions against perpetrators of fraud set the ‘tone at the top’ from the management that such activities will not be tolerated within the organisation and discourages those potential fraudsters waiting for an opportunity to commit fraud/corruption. In the Middle East, Saudi Arabia has taken a leading role in creating fraud and corruption awareness. The H. M. King Abdullah has formed a commission which has launched one of the most visible anti-corruption awareness campaigns in the region.

Considering Saudi Arabia’s dominant position in the region, this effort will have a positive impact in the overall business environment in the GCC countries. The environment is right for both public and private establishments to capitalise on this positive anti-corruption environment by set ting up their own anti-corruption/antifraud awareness programme to support His Majest y King Abdullah’s initiatives to establish ethical business environment consistent with Islamic values.

SUBSCRIBE NOW TO THE REGION'S FIRST MIDDLE EASTERN FOCUSED ACCOUNTANCY MAGAZINE. Complimentary subscription for any accountants currently working or studying in the UAE. Every month we will bring you the latest news, expert opinion, interviews with regional influencers and policy makers, as well as CPD advice, job opportunities and moves. Accountant ME will also feature regular articles and reports on auditing, legislation, management advisory services, ethics, professional development and practice management.

To subscribe visit

accountancyme.com/subscribe Contact us today for more information about this brand new title. SALES Christopher Stevenson Tel 04 440 9138 Email chris@cpidubai.com

EDITORIAL Joyce Njeri Tel 04 440 9140 Email joyce@cpidubai.com

BUSINESS INSIghtS

UAE CONSUMER CONFIDENCE UP MasterCard Index study reflects positive outlook in key sectors including economy, employment sector and the stock market...

ASTERCARD HAS revealed the results of the latest MasterCard Index of Consumer Confidence, which indicates that Consumer Confidence in the UAE is steadily rising, with a score of 91.4, as compared to 86.0 in the previous edition of the Index released 6 months ago. Consumers in the UAE are ‘extremely optimistic’ in their overall consumer confidence score, and are positive about all five indicators measured in the Index. When compared to the previous edition of the survey, consumers are more optimistic about Quality of Life (95.6 vs. 88.6), Employment (95.2 versus 88.9), Economy (94.6 versus 89.1) and the Stock Market (86.9 versus 77.0). Consumers also remain very optimistic about Regular Income (84.7 versus 86.2), despite a slight decrease in its score when compared to 6 months ago.

Regular income The latest findings indicate that female respondents and male respondents are equally positive about the coming months (91.4), but that consumers under the age of 30 years (94.6) are

“Consumer confidence levels in the UAE have been steadily increasing in our most recent indices, reflecting a positive outlook for key sectors and confidence in the UAE’s plans and vision for the coming years.”

68 April 2013

more optimistic than older respondents (90.4).

Across the Middle East, the consumer confidence level remains very optimistic at an average score of 81.1, with encouraging scores for all five indicators. When compared to the previous edition of the Index released six months ago, consumers are most optimistic about Regular Income (85.1 vs. 89.8), Employment (80.8 vs. 85.5), Economy (80.0 vs. 84.4), Stock Market (79.9 vs. 74.9) and Quality of Life (79.9 vs. 82.9). Employment prospects In the Middle East, consumer confidence remains the highest in Qatar, with a score of 96.5. Qatar is followed by Kuwait (95.8), Oman (95.6), Saudi Arabia (95.2) the UAE (91.4), Egypt (66.6) and Lebanon (26.8). The Middle East’s aggregate score of 81.1 remains higher than that of Asia/Pacific (59.7) and Africa (69.6), as was the case in the previous survey.

BUSINESS INSIghtS

Middle east ConsuMer ConfidenCe results:

MarKets

1H 2013

2H 2012

1H 2012

2H 2011

1H 2011

2H 2010

1H 2010

2H 2009

Egypt

66.6

90.7

88.3

75.4

47.7

45.5

59.5

32.4

Kuwait

95.8

84.7

88.3

90.6

80.4

96.9

70.9

49.7

Lebanon

26.8

44.3

70.5

24.1

54.3

44.6

55.4

64.5

Oman

95.6

91.5

93.6

98.8

Qatar

96.5

96.6

93.6

99.7

83.6

65.8

89.2

71.6

Saudi Arabia

95.2

90.9

83.9

98.4

95.1

85.0

83.2

67.3

UAE

91.4

86.0

82.1

92.9

73.6

82.4

86.1

29.6

83.5

85.7

82.8

72.4

70.1

74.1

52.5

Total Middle East

The MasterCard Index of Consumer Confidence (‘Index’) is based on a survey conducted between November 7 to December 23, 2012 on 11,339 respondents aged 18 – 64 in 25 countries within Asia/Pacific, Middle East and Africa. This is the 40th survey of Consumer Confidence conducted since 1993. The Index and its accompanying reports do not represent MasterCard’s financial performance. Methodology Respondents were asked five questions pertaining to their six-month outlook on the economy, employment prospects, the local stock market, their regular income prospects and their quality of life. The results of their responses were converted in five component indexes which were averaged to form the MasterCard Index of Consumer Confidence (MWICC) score. The MWICC Index score and the five component index scores range from 0 – 100 where 0 represents maximum pessimism, 100 represents maximum optimism and 50 represents neutrality.

The MasterCard Index of Consumer Confidence is the most comprehensive and longest running survey of its kind in the region. In June 1997, the Index revealed a decline in consumer confidence – one month prior to the devaluation of the Thai baht that triggered the regional economic crisis. In June 2003, the Index score for Employment

in Hong Kong dropped to a low score of 20.0. This was subsequently reflected in Hong Kong’s unemployment rate, which peaked just before September 2003 at eight per cent.

Quality of life The survey comprising the Asia/Pacific markets began in the first half of 1993 and has been conducted twice yearly since. Markets from the Middle East and Africa were included in the Index from 2004. Twenty five markets now participate in the survey: Australia, China, Egypt, Hong Kong, India, Indonesia, Japan, Kenya, Kuwait, Lebanon, Malaysia, Morocco, New Zealand, Nigeria, Oman, Philippines, Qatar, Saudi Arabia, South Korea, South Africa, Singapore, Taiwan, Thailand, United Arab Emirates and Vietnam.

The Index is calculated based with zero as the most pessimistic, 100 as most optimistic and 50 as neutral. Five economic factors are measured: Employment, the Economy, Regular Income, Stock Market and Quality of Life.

The responses are consumers' thoughts on the six months ahead. Data collection was via internet surveys and face to face interviews, with the questionnaire translated to the local language wherever appropriate and necessary. The survey has a margin of sampling error of plus or minus four to five percentage points at the 95 per cent confidence level.

91.4

Latest confidence score compared to 86.0 in Last study conducted six months ago 69

BusiNEss iNsiGHTs

THE BOOMERANG EFFECT DEPRIVATION Famine and water scarcity are a reality in India and China. But innovation and smart policy decisions can mitigate the worst effects.

BCG research shows rise of the middle class in China and India could prompt widespread shortages and inflation, but smart investment, policies, and technologies could forestall crisis…

HINESE AND Indian consumers are living well and eating well. And that could spark a global crisis. The consumer boom in China and India will touch off global inflation and could lead to food and water riots if investment, policy, and technology don’t keep pace. Without smart, quick action by the private sector and government alike, surging Chinese and Indian demand for premium foods will lead to commodity volatility, runaway food prices, and worldwide water shortages as the ‘boomerang effect’ brings the unexpected impact of Asian growth to US shores.

2 bn

estimated number of middle class chinese and indian consumers by 2020 70 April 2013

That’s the conclusion of research by the Boston Consulting Group (BCG). The main findings are presented in a recent study titled; ‘The Perspective’ and ‘The $10 Trillion Prize: Capturing the Newly Affluent in China and India’ authored by BCG consultants Michael J. Silverstein, Abheek Singhi, Carol Liao, and David C. Michael.

Hard-to-foresee outcomes ‘The Perspective’ is part of BCG’s Game-Changing Programme to help leaders and their companies capitalise on the opportunities created by the seismic shifts in the global economy.

“Chinese and Indian consumers are celebrating their newfound wealth by eating like Americans: they’re shifting their diets from grain to meat,” Silverstein said.

“Their wealth is a good thing. It creates new markets and new opportunities. But it can also lead to global traumas: highly inflated food prices across the US, as well as dangerous worldwide shortages of key natural resources, especially water. This is an example of what we call the boomerang effect—a set of hard-to-foresee outcomes that come home to roost as a result of developments far away,” Silverstein added. “We have seen it before. In the early 1990s, direct investment in China led to a flood of cheap goods and permanent shifts in the US labour market. This time, it’s different. The Chinese and Indian middle-class consumers have developed new food preferences that will lead to hyper-competition for commodities such as feed, corn, and water. Climate change is already creating droughts worldwide and bringing the threat of famine, food riots, and water wars in Asia. This new surge in consumer demand will worsen the strain in Asia and the US as well.”

BusiNEss iNsiGHTs

According to Silverstein, the boomerang effect doesn’t necessarily lead to chaos.

“Crisis can always lead to opportunity. Smart investments and policies can limit the impact of inflation and shortages,” he added.

Practical scenarios According to BCG, there are only a few steps between booming wealth and changing tastes in China and India and global crisis: Wealth—and consumption—is skyrocketing in both India and China. By 2020, there will be two billion economically able Chinese and Indian consumers—one billion of them new to the middle class. In both nations, lifetime consumption patterns are changing radically. Chinese born in 2009 will consume 38 times more than those born in 1960. Indians born in 2009 will consume 13 times more than those born in 1960.

Put a strain on the global feed supply? You’re going to pay for it. China’s corn consumption will have significant global impact, and prices will surge well beyond current levels. Global corn consumption is projected to rise 3.2 per cent per year from now through 2020. That means a 40 per cent increase in overall consumption. And that means corn prices could increase as much as 57 per cent from 2010 through 2020.

Expensive corn means expensive food. Demand for corn in China drives up beef prices in the US. Feed is 55 per cent of the cost of raising cattle. And grain is 60 per cent of the total cost of feed. So a 57 per cent increase in the cost of feed by 2020 could lead to a 20 per cent increase in beef prices. That hits home. A Big Mac, which cost about $3 in 2003 and goes for just over $4 today, could, by 2015, easily cost $5—or even more. There’s no meat without feed and no feed without water. To grow feed grain, you need large quantities of water. China’s shift to meat consumption leads to a tenfold increase in the need for water. And the water supply is already in crisis. Worldwide, water consumption is already ahead of sustainable supply and is growing at 2.2 per cent a year. In China and India (which depends on China for much of its water), water supplies are strained by drought. India could have 600 million people without water in 25 years. The water crisis brings it all back home. Water is a problem in the US, too. It is becoming difficult

“Chinese and Indian consumers are celebrating their newfound wealth. While this wealth is a good thing, it can also lead to global traumas: highly inflated food prices across the US, as well as dangerous worldwide shortages of key natural resources, especially water.”

to irrigate land there, and a new dust bowl is a real possibility. Water restrictions are already in place in Western states. US water riots aren’t out of the question. But short of that, scarce water means costlier food. The last dust bowl—from 1931 through 1936—killed off 30 per cent of corn production and drove corn prices up 115 per cent. Right now, US food exports to China require an 18 per cent annual increase in water consumption. Higher corn prices, the result of drought alone— leaving out other factors—could double the price of chicken by 2018. Getting ahead of the crisis Is the worst-case scenario inevitable? Not necessarily, Silverstein said.

“Famine and food riots are a reality in India, and water wars between China and India are a genuine risk. But innovation can help. Smart policy decisions can mitigate the worst effects and create opportunities for companies that are sharp and nimble.” BCG lists the following among the private- and public-sector initiatives that could help:

Micro-irrigation that delivers water directly to plant roots could increase the efficiency of water use by 50 per cent. Innovations in seed technology, including genetically modified organisms, can mean higher food production with no increase in water consumption. New policies that price water at market rates, could, said Silverstein, “lead to more efficient water use.”

“The boomerang effect doesn’t have to end in riots and fewer hamburgers for Americans,” Silverstein added. 71

TAX WATCH

MENA FACES HURDLES OVER

FATCA Deloitte says new US tax compliance a challenge for financial institutions in the Middle East, no regional government close to an agreement with the US treasury...

Y THE end of 2013, the United States’ Foreign Account Tax Compliance Act (FATCA) will require all foreign financial institutions (FFIs) to enter into disclosure compliance agreements with the US Treasur y. According to Deloitte, significant effort is required to meet this challenge in the Middle East while assessing and navigating the impact of FATCA requires a flexible approach grounded in solid expertise. Deloitte designed a series of workshops to help businesses in the Middle East address the developments of FATCA and prepare for them. “FATCA is one of the most important and challenging projects for global financial institutions this year. Every CEO and Board of Directors needs to understand the legalities behind it and know where they stand. Ultimately, that is where the responsibility rests,” said Joseph el Fadl, partner in-charge of Global Financial Services Industry for Deloitte in the Middle East.

Disclose account holders FATCA requires not only all foreign (nonUS) banks but also other foreign financial institutions (mutual and hedge funds, insurance companies, trusts and Islamic finance structures) to disclose all US account 72 April 2013

GRACE PERIOD: According to the US Treasury there is still time for countries that have not already initiated discussions with the US Treasury on IGAs, to do so.

holders to the US Internal Revenue Services (tax authority).

The operative mechanism is that if any affected entity wants to do business with or invest in the United States, it has no choice but to comply with FATCA, irrespective of whether it has a US branch, office, or other presence. Otherwise, its US portfolio is subject to 30 per cent tax on income as well as capital proceeds.

“We are working closely with our clients across the region to ensure full compliance with FATCA, as this is one of the most critical commercial issues currently faced by banks and financial institutions around the world. A series of deadlines have been set by the US Treasury by which various procedures need to be in place, and covers areas such as due diligence, monitoring, reporting, and withholding, Financial institutions need to put in place an effective plan to ensure that these requirements will be met,” said Humphry Hatton, Chief Executive, Deloitte Corporate Finance Limited.

Provide protective buffer In 2012 the US Treasury unveiled two models for intergovernmental agreements (IGAs) under FATCA. Recently further clarification has been provided around these two types of IGA and this has been shared by Deloitte in its series of workshops in the Middle East.

TAX WATCH

30%

tax imposed on foreign financial institutions that don’t meet fatca requirements in the us

“IGA is the least worst option. It affords many benefits over the IRS direct route including the removal of the withholding requirement and it also provides a protective buffer to the domestic banking industry. Negotiating an IGA is a complex and protracted process. You need to know what to ask for, we are in discussions with banking associations and governments” said Ali Kazimi, Managing Director and Deloitte Middle East FATCA Leader.

Deloitte FATCA experts explained that Model I would require the local government to take a much wider role in FATCA enforcement. In this case FATCA regulations will not explicitly apply to financial institutions (FIs), instead the local regulations will supersede.

Local legislation would therefore need to be introduced, and approved by the government. In this case FFIs will not be required to enter into agreements, and only registration will be required with the US Treasury. All FFIs within a given participating jurisdiction will be considered as being participants and all reporting will be to the local authority, who will then report information to US authorities. Such an IGA will not cover the branches and subsidiaries of the entity which are based outside of that IGA jurisdiction.

Bilateral tax treaties Model II IGA, which Deloitte FATCA experts clarified was introduced as an alternative for jurisdictions where Model I would not work. It would see a reduced role of the local government as each financial institution would have to enter into an agreement directly with the Internal Revenue Service (IRS). In this case non-confirming/recalcitrant accounts or accounts who have not agreed to a banking secrecy waiver would need to be reported to the local authorities, who would then share this information with the US. Countries with information exchange/bilateral tax treaties with the US have been negotiating

FATCA requires not only all foreign (nonUS) banks but also other foreign financial institutions to disclose all US account holders to the US Internal Revenue Services

IGAs, pointed out Deloitte FATCA experts. However, the US government is considering allowing countries who do not have such treaties in place to still be able to have an IGA set-up.

In recent months the total number of countries currently in discussions with the US on IGA increased from 50 to 60. According to the US Treasury there is still time for countries that have not already initiated discussions with the US Treasury on IGAs, to do so. It should be noted though, that despite discussions, it is believed that there is at present no government in the MENA region close to entering into an agreement with the IRS, therefore local banks and financial institutions need to be preparing to be subject to the full FATCA requirements.

Complex provisions Kazimi added that chief compliance officers, tax reporting heads, and other key players within financial institutions will need to evaluate the potential impact of these regulations and develop a plan for managing and remediating any potential risk associated with FATCA non-compliance.

In some instances, in the view of Deloitte FATCA experts, there is a lack of awareness about the extent of Responsible Officer (RO) requirements, where a senior member of the FFI will certify to the IRS on behalf of the board of directors, that the FFI is compliant with the FATCA regulations to the best of their knowledge. It is possible that US tax authorities may criminally prosecute a false document case under various laws which may apply – this is clearly an area for concern and further discussions and clarifications are to be expected. The provisions of FATCA are complex and will operate so as to make it difficult for any financial institution to operate unless it complies with the FATCA regime by registering with the IRS. Such institutions will need to do this as other US and FATCA compliant institutions may consider not to pursue further and discontinue banking operations with a non FATCA registered institution.

Operationally this will mean that all financial institutions will need to enhance their customer due diligence procedures in order to capture additional data required for FATCA compliance and also modify systems to cope with the FATCA compliance requirements. 73

Industry AppoIntments

APPOINTMENTS If you have made a new appointment, promotion or have any relevant hiring news, please email the details and a photo to accountancy@cpidubai.com

Hilda Mulock Houwer has joined KPMG Lower Gulf in its Markets Group as an Oil & Gas sector specialist Partner. Hilda was previously with KPMG in Cape Town and Moscow as the Global Head – Advisory (Oil & Gas). She will be overseeing business development engagements in UAE/Oman and Bahrain/Qatar within the Oil & Gas/Energy sector and the Global firm’s Oil & Gas leadership. Hilda is a qualified member of the South African Institute of Chartered Accountants and will be based out of KPMG’s office in Abu Dhabi. The Trustees of the IFRS Foundation, responsible for the governance and oversight of the International Accounting Standards Board (IASB), have announced the appointment of Dr Abdulrahman Al-Humaid as a Trustee of the IFRS Foundation. Dr Al-Humaid’s appointment, approved by the IFRS Foundation Monitoring Board, will begin with immediate effect and will expire on December 31, 2015, renewable once for a further threeyear period. Dr Al-Humaid has for more than 30 years held leadership roles within various accounting and financial services activities, both within his home jurisdiction of Saudi Arabia as well as in the broader Middle Eastern region. He chairs the Committee for Adopting International Accounting Standards of the Saudi Organisation of Certified Public Accountants (SOCPA), having served as the Chairman of its Accounting Standards Committee 74 April 2013

from 1996 until 2002. In addition to his responsibilities in the field of accounting, Dr Al-Humaid serves as a member of the Board of various companies listed on the Saudi exchange. Dr Al-Humaid received his PhD in Accounting from Louisiana State University and his Bachelor's degree in Accounting from King Saudi University in Riyadh, Saudi Arabia. He worked as a Professor of Accounting at King Saud University from 1982 to 2008 and has published several books on accounting theory and practice. Software AG has announced the appointment of Nicky Sheridan as Senior Vice President – Middle East, Africa and Turkey. Prior to joining Software AG, Nicky held a variety of roles at Oracle from HQ in California to his base in Cape Town, South Africa. As a Chartered Accountant (KPMG) Nicky started with Oracle as its Internal Audit Manager and worked in a variety of Finance & Operations Director roles in Australia, Denmark & Eastern Europe. In 1993, He started Oracle operations in Hungary. In 1998, Oracle was the pioneer of Shared Services and Simplified, Standardised, Automated & Centralised their back office processes in Dublin, Ireland. Prior to taking up the role of VicePresident and Managing Director of Oracle Ireland in 2003, Nicky was Vice President of Oracle's Shared Services Centre in Dublin, which services all of Oracle’s back office services for EMEA. In October 2005, he took up the appointment of Vice President & Managing Director of Oracle South Africa, and three years later, in June, he was promoted to Vice President

CMUT MEA & Country Leader Oracle South Africa and in 2011 Nicky was promoted to Vice President for Middleware in MEA. Standard Chartered has announced the appointment of Imran Sarwar as the new Head of Origination and Client Coverage (OCC) for the UAE. In his previous role, Imran was Head of OCC for Standard Chartered in Pakistan. Imran has been with the Bank since 1990 and has held various other roles internationally. In his new role, Imran will lead the Bank’s Origination and Client Coverage Group, which shapes the client-centric strategy of deepening client relationships across the Bank’s wholesale banking business in the UAE. Imran will be based in Dubai and will report to Morad Mahlouji, Regional Head of OCC, MENAP; he will also report to Jonathan Morris, CEO UAE. Vivek Garg has joined Al Nasser Holdings Group, Abu Dhabi as an audit executive. Prior to that, he served in the same position at one of the leading accountancy firm in New Delhi, S.S. Kothari Mehta & Co. He has vast experience in risk-based internal audit. With its corporate headquarters in Abu Dhabi, Al Nasser Holdings Group have operations in most countries in the GCC, with diverse business interests in retail, manufacturing, oilfield supplies, real estate among others.

searching for a ceo, cfo or coo?

finD the right one with shane phillips.

With two generations of Executive Search experience, Shane Phillips Consultants offers high touch bespoke service for clients looking to hire the best people who will be the ultimate architects of your companyâ&#x20AC;&#x2122;s growth. Our services include Executive Search, Executive Assessment, Recruitment Process Out-sourcing, Executive Coaching, Succession Planning and Leadership Events. Get in touch with us today to build your executive leadership team.

shane phillips consultants +971 50 940 7537 |

shane@shanephillips.net |

www.shanephillips.net

Are you reAdy to leAd As CFo in the boArdroom? FINANCIAL TALENT EXECUTIVE NETWORK (F-TEN™) F-TEN is an elite business leadership programme and international cross-industry peer network that equips aspiring or newly-promoted CFOs for success in the boardroom. Launching in September 2013, this 10-month unrivalled development experience features: • Executive 1:1 mentoring sessions with leading local CFOs, NEDS and chairmen • Leadership workshops facilitated by INSEAD’s global leadership experts at their world-class Singapore campus • Peer strategy groups to tackle real life business and leadership challenges • Networking dinners with inspirational business speakers • Access to ICAEW’s finance and management resources On graduation, delegates receive a certificate of leadership endorsed by ICAEW and INSEAD. Contact grace.christie@icaew.com for more information on course structure, application details and fees.

BUSINESS WITH CONFIDENCE

icaew.com/leadership