Accountant Middle East - May 2013

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setting standards in financial auditing & accountancy

May 2013

THE

GODFATHER OF PRIVATE EQUITY ICAEW-chartered accountant Sameer Al Ansari has more than just a famous last name

PE-AK PLAYER

The twists and turns in Imtiaz Hydari’s career journey

AUDIT MONITORING REPORT IS OUT Does your practice meet international standards?

DFSA investigates

BRIDGING THE GAP

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editor's audit

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

Finding value in PE market NO, IT’S not a coincidence that our main interviews for this month feature some of the top Grand Fathers of Private Equity (PE) in the UAE.

EDITORIAL Editor Joyce Njeri joyce.njeri@cpimediagroup.com +971 4 440 9140

The equity market in the country is on a roll and there’s no doubt that many of today’s investors are finding themselves at the centre of the evolution of a true global economy, brought about by the role of Private Equity, not only as an asset class, but also as source of funding for businesses.

Contributor Shane Phillips ADVERTISING Commercial Director Chris Stevenson chris.stevenson@cpimediagroup.com +971 4 440 9138 PRODuCTION & CIRCuLATION Production Manager James P Tharian james.tharian@cpimediagroup.com +971 4 440 9146 Database and Circulation Manager Rajeesh M rajeesh.nair@cpimediagroup.com +971 4 440 9147 DESIGN Head of Design Fahed Sabbagh fahed.sabbagh@cpimediagroup.com +971 4 440 9148 Graphic Designer Glenn Roxas glenn.roxas@cpimediagroup.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

Furthermore, the volume of Private Equity investment activity is expected to increase over the next 12 months, according to Deloitte’s latest Private Equity Confidence Survey.

In our Personality & Practice segment, read about Imtiaz Hydari, who is currently the Chairman of Rasmala Investment Bank.

As one of the Godfathers of Private Equity in the region, the ICAEW Chartered Accountant was the key architect of the famous Inchcape deal, a 150 million US dollar acquisition which eventually led to the founding of the now famous Private Equity house, Abraaj Capital. The Abraaj Group today manages $ 7.5 billion in assets, operating through 33 offices in Asia, Africa, Latin America and the Middle East.

Likewise, peering on the cover is Sameer Al Ansari, a man who needs no introduction. A major player in Private Equity, Sameer gives us invaluable insight into his career and how he is now using his knowledge gained from his senior management roles at various top listed companies in the UAE, to help investors make sound decisions at his PE-Plus Advisory firm.

Hot off the press is a new audit monitoring report released by the Dubai Financial Services Authority (DFSA). The objective of this report - published exclusively by Accountant Middle East - is to assess whether Registered Auditors (RAs) in the Dubai International Financial Centre (DIFC) meet the appropriate international standards which include, the International Standards on Auditing, the International Standard on Quality Control and the Code of Ethics for Professional Accountants (Code of Ethics) issued by International Federation of Accountants (IFAC).

I hope these articles, and many others we’ve lined up inside, will enrich you more in your practice.

Published by

Joyce Njeri Editor, Accountant Middle East

Office 804 Grosvenor Business Tower, TECOM PO Box 13700 Dubai, UAE Tel: +971 4 440 9100 Fax: +971 4 447 2409 setting standards in financial auditing & accountancy

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May 2013

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Facebook: www.facebook.com/AccountancyME LinkedIn group: Accountant Middle East THE

GODFATHER OF PRIVATE EQUITY ICAEW-chartered accountant Sameer Al Ansari has more than just a famous last name

PE-AK PLAYER

The twists and turns in Imtiaz Hydari’s career journey

AUDIT MONITORING REPORT IS OUT Does your practice meet international standards?

DFSA investigates

BRIDGING THE GAP

Find out the salaryboosting advantage of having a PwC Mini-MBA

PUBLICATION LICENSED BY IMPZ

Subscribe now

www.accountancyme.com 3

Contents May 2013

Main Features

20

4

20

Cover story:

Epitome of nobility – ICAEW-certified Sameer Al Ansari narrates his family’s incredible journey as immigrants from Palestine to becoming the big business entrepreneurs they are reknowned for in the UAE, today.

30

Career Development:

Bridging the gap – As PwC rolls out its MiniMBA, Course Director Amanda Line tells us more about the programme’s offering.

44

personality & praCtiCe:

PE-AK player – As one of the Grand Fathers of Private Equity in the region, Imtiaz Hydari’s career journey has taken a fair amount of twists and turns.

May 2013

44

Current Affairs 8 news & views:

Green is the new lean – Senior business representatives from Dubai have agreed that sustainability reporting has an important role to play in the continuing development of the UAE.

12

Business piCtorial:

30

14

aCCa survey:

19

integrateD reporting:

Value advantage – ACCA survey highlights need for broader skills set in public and private sectors.

Dynamics of IR framework – Sustainability council says Integrated Reporting expected to change how investors value business.

26

internal auDit:

A risk-based approach – Just like their external audit counterparts, the internal auditors have also adopted a cautious attitude towards their work.

40

iFrs speCial:

The Fab 5 – Rakesh Pardasani, partner at RSM Dahman audit firm, takes a look at the changes in IFRS relating to Consolidations and Joint Venture entities.

74

Special Reports

Profession Watch

MECA goes MEGA – Chief Finance Officers and Senior Finance Executives from the UAE, Saudi Arabia, Bahrain, Qatar, Jordan, Egypt, Pakistan and India converge in Dubai for the Middle East CFO Alliance (MECA) conference.

tax watCh:

56

taking stoCk:

62

equity markets:

68

Business insights:

MENA states mull tax amends Lowering of corporate tariff rates expected to increase Foreign Direct Investment inflows.

Anatomy of finance transformation How the ‘One Baker Hughes’ initiative has helped the oilfield services giant company to overcome business challenges.

Fresh green shoots in equity markets - UAE yields average Total Shareholder Return of 24% in 2012, exceeding global average of 18%.

Challenging the status quo - New research reveals Saudi women’s quest to break entrepreneurial barriers, despite enormous hurdles.

inDustry appointments:

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

38

From the Experts 50 auDit insight:

DFSA key audit report out - Regulator releases monitoring programme aimed at assessing whether Registered Auditors in the Dubai International Financial Centre meet the appropriate international standards.

60

18

Corporate treasury:

Handle with care – Treasurers should approach derivatives with caution, but not with loathing, says Sarah Boyce.

Interactions 3 eDitor's auDit

5

IFRS SPECIAL

ALL SET FOR WORLD ACCOUNTING SUMMIT Conference Chairman Abbas Ali Mirza releases programme and the full list of invited speakers…

I

N THE backdrop of the recent appointment of the first ever trustee from the Middle East to the International Accounting Standards Board (IASB) Foundation, which bears powerful testimony to the importance of the Middle East to the IASB, accountants and auditors in the Middle East should be able to gauge the relevance of applying the International Financial Reporting Standards (IFRSs) in the region.

Abbas Ali Mirza, Chairman, World Accounting Summit Partner, Deloitte & Touche (M.E.) Chairman, 21st session of ISAR/UNCTAD Chairman, Auditors Group, Dubai Chamber of Commerce

After eight (8) ‘World Accounting Summits’ held in Dubai annually since 2005, the conference organisers - IIR - are getting ready to roll out the ‘9th World Accounting Summit presents IFRS. (See opposite page for more details).

By now, you would have received your brochure for this year’s ‘World Accounting Summit presents IFRS’ which will run at Movenpick JBR, Dubai, UAE from May 20 to May 23, 2013 and noted that this year’s presenterlineup is quite impressive and includes well-known speakers, regional industry leaders, practitioners, representatives from the ‘Big 4’ firms, as well as heads of accounting bodies such as the Institute of Chartered Accountants in England and Wales (ICAEW), Institute of Chartered Accountants of Pakistan (ICAP), the Institute of Chartered Accountants of India (ICAI), Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the Saudi Organisation for Certified Public Accountants (SOCPA) and features, amongst others: Atiq Juma Faraj Nasib, Senior Director, Dubai Chamber of Commerce & Industry

This year’s presenter-lineup is quite impressive and includes well-known speakers, regional industry leaders, practitioners, representatives from the ‘Big 4’ firms, as well as heads of major accounting bodies.

6

May 2013

Ahmed Bin Abdullah Al Moghames, Secretary General, SOCPA Dr Khaled Al Fakih, Secretary General & CEO, AAOIFI Ahmed Saeed, President, ICAP S. Santhanakrisnan, Chairman, Accounting Standards Board , ICAI Kurt Ramin, Former Director and Advisor, IFRS Foundation at the IASB Peter Beynon, Regional Director –Middle East, ICAEW James Ravi, Regional Director-Middle East, ICAI Rajesh Parek, CFO, Dubai International Financial Center (DIFC) Vijay Raghavan, Group Finance Director, ARENCO Group Sanjeev Agarwala, CFO, Al Habtoor Group Nauman Asif, CFO, Bayt.Com Paul Raftery, Divisional Finance Controller – Finance and Corporate Affairs, Mubadala Anthony O'Sullivan, Partner, Ernst & Young Yusuf Hassan, Partner - Technical (Department of Professional Practice), KPMG Ashruff Jamall, Partner, PWC Padmanabha Acharya, Partner, Deloitte Casey Blatch, Financial Planning, Reporting & Services Manager, Almarai Company Adil Madani, Senior Manager, General Accounting, Qatar Telecom Asim Rasheed, Head of Financial Policies & Technical Standards, Emirates NBD Surendra Jain, Group Finance Director, Arenco Group Yousif Mahmoud Yousif Al Dwaikat, Chief Auditor Financial, ARABSAT Uzair Aziz Dawood, Manager - External Reporting, Emirates National Oil Company (ENOC)

This technically-oriented Summit has been specially designed as an ‘IFRS Crash Course’ to provide an essential and urgent update on the latest changes to IFRS that have to be applied during 2013 for financial statements prepared and presented under IFRS and therefore there are a number of Technical Master Classes and Workshops included in the 4-day World Accounting Summit.

A

Presents

IFRS

Co

GA

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

IN

nc O ise n IF Upd RS a

te

News & Views

GREEN IS THE NEW LEAN

SENIOR BUSINESS representatives from Dubai have agreed that sustainability reporting - which provides information about organisations’ economic, environmental, social and governance performance - has an important role to play in the continuing development of the UAE. Taking part in a focus group organised

by ACCA (the Association of Chartered Certified Accountants), 11 high level delegates representing a range of organisations – including KPMG, the National Bank of Abu Dhabi, the Abu Dhabi Sustainability Group and The Pearl Initiative discussed one of the key outcomes of the Rio +20 Earth Summit – Paragraph 47 - which stated : “We acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle.”

Delegates to the round table agreed that while the level of sustainability reporting is low in UAE, it was felt that sustainability reporting should play an important role in the development of UAE in the years to come.

Susie Isaacson (pictured), Head of the UAE for ACCA, said: “Clearly, the business environment is very healthy here, but increasingly stakeholders around the world are looking for as much information as possible – and sustainability reporting has a clear role to play in this area.”

8

May 2013

‘PROTECT NATURAL CAPITAL’: ACCA THE PRIVATE sector has a responsibility to protect the natural environment, accountants have said.

In a survey titled; ‘Natural Capital – what do accountants think?’ which has been published by ACCA (the Association of Chartered Certified Accountants), the accountants who participated in the study also identified the top five risks that natural capital poses to operations in the private sector, as being: Reputational risk (68%), Disruption of operations (61%), Scarcity and increased cost of resources (50%), Supply chain risk (47%) and Financing risk (46%).

Gordon Hewitt, sustainability advisor at ACCA and author of the report, said: “Natural capital, which is the stock of capital derived from natural resources such as biological diversity, ecosystems and the services they provide, is in decline globally."

Hewitt observed that the loss of natural capital exposes companies to a range of new risks and opportunities that can impact profit, asset value and cashflow, blaming the lack of awareness to widespread corporate inaction "as many of the accountants surveyed work for organisations that do not report on natural capital."

STATS FACT:

68%

proportion of ‘reputational risk’ that natural capital poses to business operations

Deloitte helps GEMS secure AED2bn debt facility DELOITTE CORPORATE Finance Ltd (‘Deloitte’) acted as financial advisers to GEMS Education Ltd (‘GEMS’ or the ‘Company’) on raising a AED 2 billion ($545 million) senior debt facility (the ‘Transaction’) as part of the Company’s continuing investment in the education sector.GEMS Education, founded in 1959 is the largest kindergarten-to-grade 12 education provider in the world employing 11,000 education professionals and educating over 130,000 students from over 150 nationalities across four continents.

Additionally, the Company’s

philanthropic arm, the Varkey GEMS Foundation was set up with an aim to impact 100 underprivileged children for every child enrolled in a GEMS school.

Founder and Chairman of GEMS Education, Sunny Varkey (pictured) said, “I would like to thank the local banks for their continued support in our quest to meet the vision of the UAE Government in creating a world class education sector and a knowledge based economy.

News & Views

IIA-UAE ANNUAL DELOITTE IN ISLAMIC CONFERENCE FINANCE RESEARCH ‘A RESOUNDING SUCCESS’

BUILDING ON previous milestones and achievements of its flagship annual conference, the UAE Internal Audit Association (IIA UAE) recently organised a successful and a record-breaking 14th Annual Regional Audit Conference in UAE’s capital Abu Dhabi.

The three day event was attended by unprecedented 596 participants; making it the largest and most attended ever conference in the history of the association.

According to staff at the association, there has been positive and encouraging feedback about the conference, which was inaugurated by the minister of Social Affairs, H.E. Mariam Al-Roumi.

Keynote speakers from the US and the UAE respectively included Lawrence Harrington, the IIA Global Vice Chairman of the Board, Dr Mansoor Al Awar – Chancellor Hamdan Bin Mohammed e-University among others.

There was active participation from regional institutes’ leaders representing the following countries: Jordan, Kuwait, Lebanon, Saudi Arabia, Sudan, Qatar and Yemen.

The highlight of the event however, was the announcement and official launch of the Arabic translation of the ‘Sawyer’ (pictured), the first ever translation of what is considered to be the main reference for the Internal Audit Profession.

Other UAE IAA-driven initiatives that carried the day included the formation of a new Federation of Arab Institutes of Internal Auditors and the first ever representation of the Global IIA Research Foundation Bookstore.

THE DELOITTE Middle East Islamic Finance Knowledge Centre (IFKC) based in Bahrain has launched a collaborative research initiative with INCEIF The Global University of Islamic Finance, Malaysia and the Henley Business School, University of Reading, UK. This initiative will pave the way for research as well as thought leadership pieces in the Islamic finance sector that will enhance the knowledge and skills of market participants and promote leading business practices through thought leadership programmes.

“There is a vital need for industry-driven research that

addresses the emerging practice, policy issues and growth opportunities in the realm of Islamic Finance,” Joseph El Fadl, Regional Leader, Global Financial Services Industry, Deloitte Middle East.

A recent report by the Organisation of Islamic Cooperation (OIC) confirms that the global market for Islamic financial services, as measured by the total volume of Sharia’acompliant assets, is estimated to have reached $ 1.1 trillion at end-2011. OIC countries, with a collective share of 98% in these assets, continue to be the main

actors in the industry’s impressive growth story.

STATS FACT:

$ 1.1 tr

global total volume of Sharia’acompliant aSSetS in 2011

Stanchart goes social STANDARD CHARTERED has announced its digital banking vision, aimed at enhancing the customer banking experience in the UAE. This is part of the Bank’s global focus on ‘Digitisation’ - socialising personal banking and extending customers’ digital lifestyle into banking. The bank also announced that it will be introducing a series of digital services and solutions to the UAE market this year. The bank also inaugurated its fifth Electronic Banking Unit (EBU),

which is located at its new Dubai headquarters in Downtown Burj Khalifa.

Standard Chartered also launched ‘Breeze’ (pictured), its award-winning Mobile Banking application, making the UAE the first market in the region where this application is available.

Breeze is designed to provide customers with a superior, convenient, personalised banking experience.

9

News & Views

GULF CAPITAL UHY STRENGTHENS PRESENCE IN EURASIA CLOSES CREDIT FUND

GULF CAPITAL, one of the alternative investment firms in the Middle East, has announced that it has received an anchor investment of $20 million into its pioneering credit and mezzanine fund from the International Finance Corporation (‘IFC’), a member of the World Bank Group. This brings the total investments in the Gulf Capital Credit Opportunities Fund to $215 million, positioning it as the largest credit fund in the Middle East.

The announcement came at a signing ceremony between Gulf Capital and IFC, attended by K. Aftab Ahmed, IFC Director for Financial Markets and Private Equity Funds, for Europe, Central Asia, the Middle East, and North Africa, Dr Karim El Solh, Chief Executive Officer of Gulf Capital, Christopher Baines and Walid Cherif, Co-Heads of Gulf Credit Partners, which is managing the Gulf Capital Credit Opportunities Fund.

According to the firm, Gulf Capital Credit Opportunities Fund will contribute to sustainable economic growth by lending to companies in various sectors including infrastructure, healthcare, education, and manufacturing. The investment agreement with the IFC will help provide long-term financing to small and medium enterprises in Turkey and the Middle East and North Africa (MENA), expand access to finance and create jobs.

The successful third close of Gulf Credits Partners’ maiden regional credit fund has already attracted commitments from bluechip institutional investors and leading family offices from the region and around the world.

10 May 2013

INTERNATIONAL NETWORK of independent accounting and consultancy firms UHY, has welcomed a new member in Georgia, the ARG Group LLC, to its global network.

ARG Group LLC was established in 2008 and has grown into one of Georgia’s leading audit and business consulting firms. With a team of 62 staff including five partners, the firm’s head office is based in Tbilisi.

The firm provides a full suite of services including commercial legal services and IT consultancy to a portfolio of clients in a variety of sectors such as construction, manufacturing, trade/industry, services and finance.

ARG Group’s managing partner, Akaki Zhamutashvili says: “Being a member of UHY will now strengthen our local capabilities, which will give our current and prospective clients access to leading audit, accountancy and business advisors anywhere in the world.”

Rajiv Saxena (pictured),

Managing Partner of UHY in the UAE, member of UHY commented: “We are delighted ARG Group LLC has joined the UHY network extending our coverage and capabilities in the Eurasia region, especially with Georgia’s strategic location between Europe and Asia and its developing role as a transit point for gas, oil, and other goods."

"ARG Group LLC’s admittance to the UHY network will bring strong regional market and sector expertise, enhancing our capabilities in this region. We strongly believe the firm is a very good fit for our network.”

Languages spoken in the firm are Georgian, English, Russian and Turkish.

BANK HOSTS MACROECONOMIC MEET STANDARD CHARTERED recently hosted a Macro-Economic briefing session titled; “Transforming, Rebalancing, and Outperforming” for its corporate clients in the UAE. The bank is holding similar briefings to clients in Bahrain and Qatar.

At the sessions, Marios Maratheftis (pictured left), Head of Macro Research, Standard Chartered Bank, and Samiran Chakraborty (right), Head of Research, India, Standard

Chartered Bank discussed the implications of the transformation that the world is going through, to the business environment in the MENAP (Middle East, North Africa & Pakistan) region.

News & Views

EASTNETS IN FATCA AWARENESS DRIVE

EASTNETS, A global provider of compliance and payments solutions, has announced that it is organising informative road shows across the GCC and Pakistan to help financial institutions understand the implications and plan for the new US Foreign Account Tax Compliance Act (FATCA).

The road show, which kicked off in Kuwait on April 22, followed by Dubai on April 24, will enable organisations to stay in compliance with FATCA and all other compliance regulations.

FATCA, which comes into effect beginning of 2014, makes it compulsory for banks all over the world to provide the US Internal Revenue Service with full disclosure on the accounts of clients who are American citizens. Although the Act is intended to prevent tax evasion among US citizens living and working abroad, it has also been raising concerns among financial institutions that want to honour international policies and yet are hesitant to possibly compromise the confidentiality of client information.

Hazem Mulhim (pictured), CEO of EastNets said, “Multinational financial institutions will need to make significant process and technology changes to comply with FATCA. The measures they will have to take can range from performing a current state assessment of systems and operations to developing action plans to implement changes required for FATCA compliance. Given this scenario, we believe that our road shows will help them better understand the implications of the Act and how they can avoid the risk of noncompliance.” The road shows in Kuwait and UAE will be followed by road shows in Saudi Arabia, Bahrain, and Pakistan and concludes in Qatar.

MENA IPOS RAISE $1.6bN IN Q1 OF 2013 ACCORDING TO Ernst & Young’s 2013 first quarter IPO update for the Middle East and North Africa (MENA), regional capital markets recorded a twentyfold increase in capital raised and a 25% decrease in deal volume in Q1 of 2013 (3 IPOs, raising approximately $1.6 billion in proceeds), compared to Q1 of 2012 (4 IPOs, raising $82.8 million in proceeds).

The three regional IPOs in Q1 of 2013 represented a 374.3% increase from the $339.8 million raised in the previous quarter, Q4 of 2012.

Phil Gandier (picture), MENA Head of Transaction Advisory Services, Ernst & Young, says: “Q1 of 2013 posted the strongest results for the first quarter of the year since

2008. However, the majority of the value is attributed to a large ticket telecommunications IPO in Iraq.

This sector is traditionally associated with large value transactions and the high Q1 performance will be sustainable if we start to see similar large value transactions on a regular basis which would bolster the regions capital markets.” Two IPOs came to market in Saudi Arabia while one was reported in Iraq. The largest issuance was in Iraq, with Asiacell Communications raising $1.3 billion.

STATS FACT:

374.3%

riSe in regional ipoS in Q1 of 2013 compared to the previouS Quarter

ICAI India unveils TV channel HERALDING A new era of education, the Institute of Chartered Accountants of India (ICAI) will soon have a TV channel for its members as well as those studying accountancy, its chief has said.

“We will start a 24-hour TV channel for our members and students. It will have interesting programmes to make learning interesting,” ICAI President Subodh Kumar Agrawal (pictured) said at a media conference in Kolkata.

“We have already set up

e-learning and internet facilities. This will be another step to reach out to the lakhs of members and students we have,” he said.

According to Agarwal, the institute has over a million students and more than 200,000 members.

“We have 21 foreign chapters. In Dubai, we have our own building and training facility," he added.

11

BUSINESS PICTORIAL

MECA GOES MEGA M MAGNIFICENT: The conference was held at the iconic Atlantis hotel, located at the Palm, in Dubai.

ORE THAN 200 Chief Finance Officers and Senior Finance Executives from the UAE, Saudi Arabia, Bahrain, Qatar, Jordan, Egypt, Pakistan and India recently attended the Middle East CFO Alliance (MECA) conference held at Atlantis, the Palm, Dubai. Prominent speakers and senior business executives from leading business organisations including SAP, HSBC, and Unilever shared their insights and latest views on hot current issues faced

by CFOs, ranging from sustainability to cross-border governance.

ATTENTION: Saba Saleem, MECA’s Public Relations and Events Manager calls the house to order during the start of the conference.

12 May 2013

HOUSE FULL: Top finance executives are all ears during the event.

BUSINESS PICTORIAL

MOST WANTED: FOCUS ON FINANCE: Panel members look on as Saleem Sufi, the President and Founder of MECA speaks during the CFO summit.

REGISTRATION: Invited Chief Finance Officers and Senior Finance Executives line up to register their presence, before the start of the Middle East CFO Alliance conference at Atlantis hotel.

Accountant Middle East Magazine’s Commercial Director Chris Stevenson couldn’t keep up with the massive interest as top finance managers rushed to subscribe to their favourite publication.

KEYNOTE SPEAKER: Sanjiv Mehta, the Chairman of Unilever, North Africa and Middle East Region delivered an inspirational keynote address.

13

ACCA Survey

VALUE ADVANTAGE ACCA survey highlights need for broader skills set in public and private sectors…

90%

of UAE bAsEd Cfos sAy nEw rECrUits nEEd to hAvE A ClEAr Ability to link bUsinEss strAtEgy to finAnCiAl rEporting

T

HE UAE’s Chief Financial Officers in both the public and private sector require finance professionals who are skilled in matters right across the value chain according to a new survey conducted by ACCA (the Association for Chartered Certified Accountants), the global body for professional accountants.

Titled; “The Complete Finance Professional: Why breadth and depth of finance capability matter in today’s finance function”, the new global survey seeks to outline the skills required of new entrants into the accounting profession by company CFOs working in industry.

Seventy seven Chief Financial Officers in the UAE were surveyed as part of the pool of over 500 professionals drawn from other markets including

“The respondents from the UAE in the survey have shown how far the finance function has moved from book keeping and cashflow management to the strategic heart of a company today.”

14 May 2013

Ahmad Darwish: “In today’s economy, those working in the finance function must have an understanding that goes beyond the balance sheet and cash flow statement.”

the UK, Malaysia, Russia and China to determine what skills are necessary for new entrants to be able to demonstrate that they can support business growth, understand the full finance value chain from budgeting to reporting, and have a sound understanding of business ethics.

Strong grounding in business Over 90% of UAE based CFOs sampled told ACCA that new recruits need to have a clear ability to link business strategy to financial reporting. In what is considered a reflection of the region’s need for greater standards of corporate governance and

ACCA Survey

“The respondents from the UAE in the survey have shown how far the finance function has moved from book keeping and cashflow management to the strategic heart of a company today.”

Nauman Asif Mian: “In an increasingly globalised economy the business world is becoming smaller and more competitive every day.”

accountability, 96% of UAE based CFOs indicated that a strong grounding in business ethics is essential to their operation.

Commenting on the research, Ahmad Darwish, UAE National and Finance Manager, DP World and Chairman of ACCA’s Member Advisory Committee, said:

“In today’s economy, it is more important than ever that those working in the finance function have an understanding that goes beyond the balance sheet and cash flow statement. The ability to analyse a business and contribute towards strategic planning are essential skills for all new financial professionals working in industry.

“A keen understanding of business ethics is also vital to ensure that public and private sector organisations are acting in accordance with the highest standards of corporate governance, accountability and transparency,” Ahmed added.

Nauman Asif Mian, Chief Financial Officer at Bayt. com Inc, said;

operating today. This competency framework covers a wide range of models including; corporate reporting, leadership and management, strategy and innovation, financial management, sustainable management accounting, law and taxation, audit and reassurance, governance risk and control, stakeholder relationship management, professionalism and ethics.

Stuart Dunlop, Head of MENASA, ACCA, commented:

“What this survey shows is that since the financial crisis of 2008, the bar has been set higher for everyone in general, but the financial heart of a company in particular requires a new breed of accounting professional.

“At ACCA, we believe that we offer a curriculum that requires trainee accountants to build a solid portfolio of skills before they enter the workforce, and even then it is only after they have completed a set period of time in industry before we can award them their full qualification.

“The respondents from the UAE in the survey have shown how far the finance function has moved from book keeping and cashflow management to the strategic heart of a company today.”

“In an increasingly globalised economy the business world is becoming smaller and more competitive every day. When you couple this with the higher standards that society holds the business community to, the requirement for top talent becomes even more focused right throughout an organisation.

“From a business perspective, I require talent, who, as a graduate from day one can provide a combination of core accounting skills and act in a more strategic function.”

Competency framework ACCA has built a qualification curriculum that is designed to meet the complete needs of businesses

Stuart Dunlop: “What this survey shows is that since the financial crisis of 2008, the bar has been set higher for everyone.”

15

DELOITTE SURVERY

NO TONE FROM THE TOP

T

HE DELOITTE Global Centre for Corporate Governance released its second annual research titled; ‘Director 360: Degrees of Progress’, with findings showing over 90% of global Directors agree that the board plays a significant role in establishing the proper ethical tone at the top of the organisation.

education, talent management, risk as well as other topics such as IT governance.

The annual survey interviewed 288 board chairmen and directors in 19 countries around the world on the topic of board effectiveness and the issues, challenges and opportunities that boards face.

Processes to evaluate board performance not a priority. The survey findings show that attempts In the Middle East to put initiatives to start evaluating the performance of the board and its related committees, however, according to ME directors this is not perceived a priority at the moment.

“The results in the survey reflect an on-going and substantial change in both the global business environment and the roles and responsibilities of board directors,” said Rami Wadie, partner, Corporate Governance Leader at Deloitte Middle East.

“In the Middle East, directors surveyed have identified many challenges and areas for improvement in the current structures and practices,” he added.

Key findings from the Deloitte ‘Director 360: Degrees of Progress’ include:

CEO succession planning is not effectively addressed by the board. CEO succession planning is vital to the organisation’s future growth.

However, 67% of Middle East CEOs do not believe that succession planning is effectively addressed by the board.

Changes in the regulatory environment will impact the board’s areas of focus over the next few years. Findings show an apparent increased focus on risk oversight and strategy setting at the board level in the Middle East. The governance codes (set of guidelines regulating the systems and processes involved in guiding an organisation) are being revised within companies in the region to address key corporate governance areas such as board 16 May 2013

Executive remuneration and compensation arrangements have become overly complex. The concept of linking remuneration to risk is being promoted in some countries in the Middle East, however, this practice is still in the infancy stage.

Sustainability and corporate social responsibility not priority on agenda. Middle East directors believe that sustainability and corporate social responsibility are currently not on the top of the boardroom agenda, but that they could be in the next couple of years.

The level of shareholder scrutiny on corporate governance practices will increase over the next few years. All of the directors surveyed in the Middle East agreed that shareholders are increasing their level of scrutiny of boards and their performance.

“With the amplified media emphasis and investor awareness, shareholder scrutiny on corporate governance practices in the Middle East is likely to increase greatly during the next couple of years.

A major reason for this surge can be attributed to growing regulatory requirements promoting increased disclosures and transparency,” explained Wadie.

The ‘Director 360: Degrees of Progress’, survey is carried out annually, soliciting views from non-executive directors on a variety of top of mind corporate governance matters from board composition, to regulation, to risk oversight, to directors’ role in strategy.

67%

of Middle east Ceos do not believe that suCCession planning is effeCtively addressed by the board

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Fulfilling your business needs We get to know your organisation and exact requirements from the moment we start working with you.

More than just recruiters We also provide a full consultancy service, giving advice on recruitment strategies. Each year we publish a free salary guide specifically for the region which provides a forecast of salaries for accounting and finance staff.

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RobeRt Half SuRvey

A SMALL WORLD: The rise in ease and prevalence of videoconferencing tools in the UAE has facilitated the recruitment process of skilled overseas as well as out-of-town candidates.

UPSURGE IN VIDEO RECRUITING 37%

HR executives wHo said tHey Have intensified tHeiR use of video to conduct inteRviews

W

ITH CANDIDATE shortages and recruitment challenges reportedly plaguing organisations throughout the Middle East, increasingly Human Resorces directors are relying on the advancement in technology to support their wider recruitment drive, according to new research from specialist recruitment consultancy Robert Half UAE. Nearly four in 10 (37%) UAE HR directors say that compared to three years ago, they have increased their use of video conferencing to conduct interviews, presenting a radical shift in the overall hiring process.

Highlighting the increased challenges that companies are facing to attract suitable candidates, nearly nine in 10 (87%) senior executives across UAE businesses report that it is at least ‘somewhat’ or ‘very challenging’ to find skilled professionals.

75 UAE ExEcUtivEs wErE AskEd, ‘How cHAllEnging is it for yoUr compAny to find skillEd profEssionAls todAy?” tHEir rEsponsEs:

18 May 2013

Very challenging

36%

Somewhat challenging

51%

net challenging

87%

When asked why their company increased the use of video conferencing to conduct interviews, nearly four in 10 (39%), respectively, cited the increased recruitment of international candidates as well as having access to better quality of video conferencing tools main reasons, followed by the increased prevalence of free or low-cost tools (including Skype) and the increased recruitment of out-of-town, domestic candidates, (both 36%).

James Sayer, Director, Robert Half Middle East said: “The recruitment of expatriate candidates is commonplace in the UAE and the rise in ease and prevalence of videoconferencing tools has facilitated the recruitment process, allowing UAE businesses to attract the skilled overseas as well as out-of-town, domestic talent they need. It also provides cost savings as much of the interview process can take place while the candidate is still in his/her hometown.”

75 Hr dirEctors wErE AskEd, ‘wHy HAs yoUr compAny incrEAsEd tHE UsE of vidEo confErEncing to condUct intErviEws?’ tHEir rEsponsEs:

Increased recruitment of international candidates Somewhat challenging

39%

Better quality of video conferencing tools

39%

Increased prevalence of low cost tools (ie Skype)

36%

Increased recruitment of domestic, out-of-town candidates

36%

Shortlisting candidates for inperson interview

29%

To avoid the commute

21%

“It is very important that candidates treat video interviews as they would a normal faceto-face interview. Hiring managers will still be assessing physical attributes such as non-verbal communication, professional attire and confidence when being interviewed on screen,” said Sayer.

“While technology has facilitated much of the recruitment process, video conferencing should not replace in-person meetings when assessing a candidate for hire. Recruitment consultancies with offices in global markets can help pre-screen and meet candidates in person, helping to secure the right match between job seeker and employer,” he added.

INteGRateD RePoRtING

BIGGER PICTURE: “Investors need to take a more holistic view of an organisation not just the financials,” says Peter Bakker, President of WBCSD and Deputy Chair IIRC

T

HE RECENT launch of the Consultation Draft of the Integrated Reporting (IR) framework is set to challenge the status quo of value creation and transparency in reporting, the World Business Council for Sustainable Development (WBCSD), has said.

Businesses and organisations worldwide were urged to take part in WBCSD workshops held during a 90-day consultation period. The workshops will allow WBCSD members and nonmembers alike to review and provide input to the International Integrated Reporting Council’s (IIRC) IR Consultation Draft Framework, ensuring it is ‘fit for purpose,’ improving decision making and driving integrated thinking for management.

What gets measured gets managed Peter Bakker, President of WBCSD and Deputy Chair IIRC, said business feedback is essential to improving the Consultation Draft to arrive at a workable framework for business.

“This is the next step in the evolution of reporting financial and sustainability performance in an integrated and transparent way. We are passionate about IR as a means of changing the way investors value businesses and allocate financial capital. The WBCSD is fully committed to the development of the IIRC’s IR framework as we believe that what gets measured gets managed."

IR is currently voluntary for business. The IIRC has designed the Consultation Draft with investors as the primary user, setting out the principles for a business to follow, linking strategy with financial and nonfinancial capital streams. IR will describe and disclose how an organisation’s business model uses financial and non-financial capital in producing value.

Rules that must be followed The Consultation Draft will not provide the rules

DYNAMICS OF IR FRAMEWORK Sustainability council says Integrated Reporting expected to change how investors value business… that must be followed in the creation of an integrated report. Instead, it will provide a framework that an organisation can determine how it should disclose its value creation journey in the short, medium and long term through its business model and its use of six different capital streams.

Bakker urged CFOs, investor relations and board members to understand what IR is, as defined in the Consultation Draft. He encouraged senior management to embrace IR and to ask management boards to look at how they can improve the linkage between strategic intent and performance.

“Financial capital is disproportionate in the way in which a company is valued. Social and environmental impacts are not recognised to the extent they need to be in investment and capital allocation decisions. This is short sighted,” warned Bakker.

“IR is also about giving credit where credit is due.

A company that leaves the environment and the community better off than when it started should have this reflected in its true value proposition,” he added.

About the WbCSD The World Business Council for Sustainable Development is a CEO-led organisation of forward-thinking companies that galvanises the global business community to create a sustainable future for business, society and the environment. Together with its members, the council applies its respected thought leadership and effective advocacy to generate constructive solutions and take shared action. Leveraging its strong relationships with stakeholders as the leading advocate for business, the council helps drive debate and policy change in favor of sustainable development solutions. The WBCSD provides a forum for its 200 member companies - who represent all business sectors, all continents and a combined revenue of more than $7 trillion - to share best practices on sustainable development issues and to develop innovative tools that change the status quo. The Council also benefits from a network of 60 national and regional business councils and partner organisations, a majority of which are based in developing countries.

19

MOvErs & shakErs

EPITOME OF NOBILITY Sameer Al Ansari has more than just a famous last name. The ICAEW-certified accountant narrates his family’s incredible journey as immigrants from Palestine to becoming the big business entrepreneurs they are renowned for in the UAE, today‌ 20 May 2013

MOvErs & shakErs

Shane PhilliPS Managing Director, Shane PhilliPS conSultantS

P

ASSION. PEOPLE. PURPOSE. These three principles have guided Sameer Al Ansari’s personal and business life from his humble beginning in Dubai in 1969 to going on to hold numerous CXO positions of multi-billion dollar companies.

Until recently, Al Ansari held the position of Chairman of Dubai International Capital - a large Government-owned investment company - as well as Jordan Dubai Capital and as CEO of Shuaa Capital.

A true rags-to-riches story, Al Ansari’s life is proof that with passion, good mentors and associates, and a strong belief in oneself and one’s work, anything is possible.

Dust bowl beginnings Al Ansari describes Dubai in 1969 as “a happy village” when he and his family emigrated from Palestine with nothing but each other.

They had no family or friends waiting for them when they arrived, and were buoyed only by his father’s vision and bravery. Al Ansari recalls, “We literally started with absolutely nothing.

My father, like many others from many parts of this region, came to Dubai with nothing.”

But that didn’t last long. Although the memories of the war in Palestine still f lashed fresh in his mind, his father was determined to make a good life for his family. Starting from the ground up in this quiet, coastal town, he quickly began building a small empire.

Al Ansari recounts his father’s innovative ventures in this emerging world:

“Out of necessity he did everything. He created one of the first coffee bean shops in Dubai. He was importing coffee beans from Aden, Africa, Iran and selling them to traders 21

MOvErs & shakErs

“…lessons were learned [from the global financial crisis]. I think everybody who went through it learned the hard way, and those are usually the best lessons, because those are the lessons that you don’t forget.” and retailers in this part of the world…He, with a group of young entrepreneurs , created the first Modern Bakery in Dubai, the first retail boutique in Dubai – Allied Enterprises, and the first dairy company in Dubai, Gulf & Safa.”

Al Ansari adopted not only this entrepreneurial spirit from his father, but also his positive attitude towards life. He describes him as "a happy man who was loved by all who knew him.”

Even through many hardships, Al Ansari’s father demonstrated constantly how

BORN LEADER: A true rags-to-riches story, Sameer Al Ansari’s life is proof that with passion, good mentors and associates, and a strong belief in oneself and one’s work, anything is possible.

22 May 2013

important it is to “stay positive no matter what you’re going through.” This upbeat attitude would serve the young Al Ansari well during the financial crisis of the late 2000s.

Even though they were immigrants from a war-torn country, Al Ansari’s father gave him and his brothers the most valuable gift a guardian can give: “Whatever money he had he put it towards getting us the best education.”

The chance of success in life Al Ansari says that a person can be successful if he works hard, and gives it his best shot, but he also warns that a person won’t get very far without a good schooling. Education was not only a foundation to a better life for Al Ansari, but also one of survival. As immigrants from Palestine, his parents knew what their children were up against.

Al Ansari recalls; “Education was always the top priorit y for my parents. You’re a Palestinian who cannot live in your [own] country so wherever you are in the world you

MOvErs & shakErs

RECOGNITION: Dubai Ruler His Highness Sheikh Mohammed Bin Rashid Al Maktoum honours Sameer Al Ansari with the ‘Young Leaders’ Award for Finance’ medal for his valuable role in the finance industry.

are a foreigner. So always remember that you are starting one step behind everybody else.

You have to work harder. You have to somehow show that you’re better than everybody else just so that you are on par with them. And education is key to getting you there. That was our weapon. You are armed with your education and that was going to help you get where you wanted to be.”

And so, with the guidance of his family, Al Ansari decided at the young age of 15 to become a chartered accountant. Unlike most adolescents, he had a sharp, defined vision of where he wanted his success to come from.

He says he knew he would be ‘set for life’ if he could become a chartered accountant in combination with being an Arab speaker. So he moved to England for school at the age of 15, and went on to university there.

Af ter years of studying and grueling exams, and “people…falling like dominoes” under the stress of the ICAEW exams, he fulfilled his dream in 1987 when he passed his Chartered Accountancy exams having received his Honors Degree in Accounting

& Financial Management and a Diploma in Industrial Studies from Loughborough Universit y in 1985.

Now fully armed and ready to tackle the world, he immediately moved back to Dubai with Ernst & Young and for the next twentyfive years held many top-level positions in a number of large companies, including as CFO of Dubai Aluminium Company (Dubal) and the Chief Financial Officer to the Executive Office of His Highness Sheikh Mohammed Bin Rashid Al Maktoum. He also served as Chairman and CEO of Dubai International Capital and CEO of Shuaa Capital. In 2009 Loughborough University bestowed upon him an honorary doctorate for outstanding achievement.

Education was not only a foundation to a better life for Al Ansari, but also one of survival. As immigrants from Palestine, his parents knew what their children were up against.

23

MOvErs & shakErs

The formula for success Busy doesn’t even begin to describe Al Ansari’s career. So the question arises: how does a person work so hard, do so much, and maintain a stable mind?

Al Ansari describes his strategy;

“You must try to create a balance, I am a Libra so it comes easy to me. Between work, family, life, and everything that you want to do and that you’re passionate about. P is for passion.

It’s one of my key words because I truly think: don’t do something if you aren’t going to do it passionately. Your work, sports, love, family: you have to be passionate about things.

Otherwise, don’t do them. That was always important to me in whatever I wanted to do.”

But it hasn’t all been easy. Al Ansari learned early on when he took on the challenge of the professional accountancy exams that quitting was not an option because each time he was tempted to throw in the towel, he says “I remembered how hard my father worked to get us a decent life. How utterly hard we worked…and thinking to myself ‘I’m not going to let them down now. I’ve got to get through this’.”

This resiliency and adaptability have become a part of Al Ansari’s purpose in his career.

Leading the global investment company, Dubai International Capital, from its inception in 2004, Al Ansari grew the business from “three employees on Day One to 120” and into a multi-billion dollar investment establishment.

In 2006 His Highness Sheikh Mohammed Bin Rashid Al Maktoum awarded him the Young Leaders’ Award for Finance.

He describes his proudest moment a year earlier when His Highness Sheikh Mohammed and with the support of His Excellency Mohammed Al Gergawi, gave Sameer and his family a UAE Passport.

Sameer Al Ansari says his proudest moment was when the Ruler of Dubai - His Highness Sheikh Mohammed Bin Rashid Al Maktoum gave him and his family a UAE passport.

24 May 2013

“This was the highest level of recognition I could ever wish for. I have lived for most of my life in Dubai, it was home and where all my children had been born, it was truly my proudest moment,” he says.

Adjusting to new realities When the recent global financial crisis struck, Al Ansari did not panic or slip into denial.

Being the CEO, he describes how he handled the situation in the midst of the madness;

“Here you are the chairman of an investment company that’s owned by His Highness Sheikh Mohammad with 13 billion dollars of assets under management with investments all over the world and you are witnessing the worst financial crisis in history and trying to… understand what’s going on, because the most seasoned professionals in the world couldn’t understand what was going on. You had to ask yourself what are the consequences? How far will this go? And will we see the great crash of the 1930s, or worse? And most of the analysis of the time was not very positive at all, most

MOvErs & shakErs

at different stages in our career, we will have these things happen to us. Learn from them.”

Al Ansari mentions again one of his important principles – people – in dealing with the crisis:

“Luckily I had an executive board made of very senior people from all over the world…that helped me separate the emotions of being the founder…to doing things by the book and doing things as any world-class organisation would.”

Confidence, not arrogance “It’s always very important to find someone who can help you along your journey,” Al Ansari says about the significance of having a good mentor.

SET FOR LIFE: At a young age of 15, Sameer Al Ansari decided to pursue accounting.

He had a sharp, defined vision of where he wanted his success to come from.

He now serves clients at his PE-Plus Advisory firm.

of the analysis said this was going to be worse than ever.”

Through his past experiences of overcoming adversity and handling extremely challenging situations, Al Ansari says he survived the crisis by “adjusting to the new realities” instead of ignoring them or hoping, like many were, to “wake up from the nightmare.” He notes that the most successful companies had CXOs who reacted quickly to the changing tides.

During 2008, even before the crisis, Al Ansari was saying, “It’s not about return on equity, it’s about return of equity.” To survive, the key was minimising the amount of damage by conserving money instead of trying to further capitalise on it.

After the dust settled, Al Ansari ref lects…

“…lessons were learned. I think everybody who went through it learned the hard way, and those are usually the best lessons, because those are the lessons that you don’t forget. Whether it’s a big crisis or a small crisis, for all of us

He mentions four by name: at Ernst & Young it was Edward Quinlan who helped him in his early career, then Mohammed Al Abbar in the early 1990s who believed in him so much and threw him into the deep end as CFO of Dubal at the tender age of 30 and whilst at Dubal Ian Rugeroni, whom he describes as “a great and wise mentor who taught me so much, every time I felt the pressure, he would help me get up there again and gave me the confidence to do it,” and most recently, Mohammed Al Gergawi “who instilled so much confidence in me and gave me the opportunity to shine.”

Surrounding oneself with good people is important, he remarks, but he cautions against relying on others or becoming arrogant.

He gives this advice;

“You may be given a chance, but you still have to deliver…You have to lead by example. Show you are passionate about what you are doing.

Show that you believe in what you’re doing…It starts with you believing in yourself. And I’m not saying be arrogant. Be confident. There is a fine line. If you don’t believe in yourself why would anyone believe in you?”

His final words of guidance to anyone at any point in his or her career echo his early observations of his intrepid father, “Keep a smile and keep going and never forget your family, they are your most valuable asset!”

He is very proud to add that his eldest son Sarri is following in his footsteps and has recently joined E&Y in Dubai with ambitions to be a chartered accountant.

25

IntERnAl AuDIt

A RISK-BASED APPROACH Just like their external audit counterparts, internal auditors have also adopted a cautious attitude towards their work, David Lewington explains…

M

OST ORGANISATIONS are so large that it is not possible to simply try and identify all the risks to which they might be subjected and match these to the available mitigating controls.

DaviD Lewington FCCA DireCtor - CG ConsultAnCy, uK

It is necessary to break the organisation down into more manageable divisions; these are often referred to as ‘entities’. Usually entities represent functional areas within the business such as finance, marketing, treasury, IT among others.

Some organisations, however, prefer to measure and manage their operational risks by ‘product’, or by main process, in either case there would be a separate entity for each product or process. You could, of course, use a combination of all three.

The concept behind risk based audit planning is that an internal audit function in a large organisation will never have sufficient staff to audit all of the entities in their portfolio, 26 May 2013

whether function, product or process, during a financial reporting period and so will need to make decisions as to which elements to select for audit in the coming year and which to leave. This decision, it is felt, is better made by considering the relative risks of each function in the portfolio.

One thing to bear in mind here though is, do you consider the risks from a financial reporting perspective or from an operational perspective?

Risk-Based Audit Planning One key concept behind this approach is that all the elements of an organisation that have some degree of risk management or control assessment in their terms of reference should be drawing data about risk and control from the same database.

Internal audit clearly falls into this category; they evaluate the control adequacy of various elements of the organisation and reflect this

IntERnAl AuDIt

David Lewington has developed an impressive suite of training programmes in the areas of Internal Audit and Risk Management. These have been delivered in countries in Asia, Europe and the Middle East.

assessment in their reports and, when planning which elements of a diverse portfolio to schedule for internal audit review in the coming period, they take into account, amongst many other factors, the control environment of each unit.

Risk-Based Audit Reporting A number of enlightened internal audit functions have now blended their audit work with the work of the risk managers and have structured their reports and the audit ratings they assign to an entity as a result of their work around the risk they perceive to be present in that entity. This has gone a long way to solving one major issue that company boards have, that of receiving one set of advice from their risk managers about where to expend control improvement efforts and another,

Risk-Based Audit Evaluation Having decided which elements of the portfolio to audit, the internal auditor adopts much the same approach as his external counterpart; the thought process is “since I do not have the resources to audit everything pertaining to this element of the business, which risks inherent in its operations present the most threat�; once this is established then the controls over those risks can be selected for priority testing; more on this later in the course.

The concept behind risk based audit planning is that an internal audit function in a large organisation will never have sufficient staff to audit all of the entities in their portfolio, whether function, product or process, during a financial reporting period.

Before any data capture can commence it is necessary to establish some details about the various elements that need to be considered when establishing an internal audit plan, and the weightings the organisation wishes to ascribe to them.

27

IntERnAl AuDIt

different, set of advice from the internal auditors.

Again, more about this later.

Risk-Based Audit Execution This is the second element of a risk based audit approach; we have already looked at how risk evaluation can be used in the planning of Internal Audit activities; now we need to examine how a risk based approach can be used to drive the performance of the audit itself.

In its early days the approach adopted by Internal Audit was to: Document the systems and processes being used in the area under review; Identify the controls in place; Test those controls to see if they were correctly deployed; Document non-compliance and formulate suggestions for remedial action.

What this approach overlooked is one very important fact; every control identified in the system could be working perfectly but the system itself could be seriously threatened because there were insufficient controls in the first place!

Awareness of this shortcoming was highlighted by the fact that areas of a business were given a clean bill of health by internal audit only to fail spectacularly soon after. This resulted in the internal audit profession waking up to the fact that it needed to introduce an intermediate step into its processes – identify the risks that

Lynchpin Training has organised a 2-day training programme on Advanced Risk-Based Audit. The course is case study driven supported by traditional lectures; this allows delegates to put into practice the theory presented to them and ensures the maximum delegate involvement. At all stages of the course “model” answers are supplied so that each delegate is brought up to a common level of achievement at all points in the course-work.

Facilitated by David Lewington, the course will be at Jumeirah Emirates Tower Hotel, Dubai, on May 22 - 23, 2013.

To register contact Qazi Waqas Ahmed on Telephone: +971 4 4370704 Mobile: +971 563090819 & +971 528371685 Email: waqas@lynchpintraining.com Website: www.lynchpintraining.com

28 May 2013

threatened the function in question and evaluate whether or not sufficient controls were in place to mitigate them and then test the controls.

This was the first move towards Risk Based Audit Execution. The next step was to recognise that there was a difference between ‘key’ controls and supporting controls; whilst both are necessary it is obviously vitally important to ensure that the ‘key’ controls continue to work as intended. This lead to another realisation; all controls are equal but some are more equal than others, to slightly misquote Animal Farm. It has always been recognised that there were four main control types: Preventative Corrective Detective Deterrent

Process versus Control It is very easy to confuse a process and a control; a lot of processing activity does not necessarily equate to a lot of control. Consider the following:

An outsourced company produces a data file every month showing credit card transactions for a bank’s customers. The file is sent to the bank where the operations department load it to the bank’s core banking system, record the billing total in the general ledger and run the file against the customer’s bank accounts.

Statements are produced from the data file and despatched to customers.

There is a lot of activity here but none of it constitutes a ‘control’; it is all one big ‘process’.

To constitute a control something would need to be checked; for example i) The bank check each month that they have received a file and it relates to the correct month ii) There is a check digit on the file that is checked by the bank to ensure the file has not been tampered with

iii) The total of the file recorded in the general ledger is treated as a ‘control total’ and when all individual transactions have been posted to the customer’s accounts someone checks that this ‘control account’ has been cleared to zero iv) Statements are safeguarded prior to despatch to ensure they are not tampered with.

Another Milestone

Congratulations to Middlesex University Dubai

Start Your Career as a Chartered Accountant BA Honours Accounting and Finance BA Honours Business Accounting •

Internationally recognised London degree, completed here in Dubai

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Tailored so that students receive exemptions from the Association of Chartered Certified Accountants (ACCA)

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9 exemptions for gradautes of Accounting and Finance, 7 exemptions for graduates of Business Accounting

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Option to transfer to London campus

Blocks 16, 17 & 19, Dubai Knowledge Village + 971 4 3678133

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by KHDA shall be recognised in the Emirate of Dubai by all public and private entities for all purposes.

Career DevelopMent

BrIDGInG tHe Gap As PwC rolls out its Mini-MBA, Joyce Njeri speaks with the Course Director Amanda Line, to find out more about the programme’s offering…

30 May 2013

Career DevelopMent

15

Number of studeNts eNrolled for the iNitial class of Pwc’s miNimba course iN abu dhabi

Congratulations on the launch of PwC’s Mini MBA programme that commenced on the 20th of Apr il in Abu Dhabi. What is special about this location that you selected it as your first launch site?

Thank you, we are very proud of our init ia l launch in Abu Dhabi. One of the goals of our Mi n i MBA pr og r a m me i s t o work with Emiratis to help them develop the k nowledge and leadership sk ills needed to guide the UAE forward – we chose to launch in Abu Dhabi because of the strong presence of Nationals in their workforce.

a.

GOOD CREDENTIALS: "PwC’s Mini MBA provides participants with an understanding of all facets of the modern organisation and the interdependence between them. We believe our offering stands out due to the practical focus of the programme."

Our key differentiator is our global network of professionals.

We are constantly communicating and gathering ideas from our diverse network of industry experts to ensure 31

Career DevelopMent

BEST PRACTICES: "Educational curriculums must be adjusted but they can never keep pace with the ever changing modern business world. I think that the sharing of experiences and best practices from current working professionals can help to bridge the gap."

our courses ref lect the needs of modern professionals and organisations. Our objective is to have industry leading experts driving our industry leading professional training. That’s the PwC’s Academy advantage.

Tell us more about PwC’s Academy and your collaboration with the UAE Academy.

PwC’s Academy is the educational business of the global organisation PricewaterhouseCoopers (PwC). Our goal is to give people greater knowledge, competence and expertise in finance and business. Our foundation is our team of expert professionals who convey their wealth of knowledge and the practical experience they have gained within leading organisations around the world.

We offer a variety of training courses covering professional qualifications, financial competencies, and management skills. The courses are based on both the individual 32 May 2013

experiences of our experts and the best practices of PwC Global. We constantly adapt our courses to meet the needs of modern business and tailor them to our client’s requirements.

PwC’s Academies in the Middle East are part of PwC’s growing network of Academies which are present in over 30 countries worldwide.

Through the network of PwC’s Academies we continually exchange best practices and successful methodologies to ensure that we are consistently providing industry leading training programmes.

Our courses are divided into three areas:

Finance skills & competencies (accounting, financial reporting, financial management, audit, corporate finance, and corporate governance) Mini-MBA Programme and Management skills (soft skills)

Career DevelopMent

training providers?

PwC is a very strong supporter of professional credentials, however in today’s competitive job market simply having a technical competence is not enough to truly create value for your business and clients. Today’s professional must be able to synergise their skills with the overall strategy and vision of the firm.

PwC’s Mini-MBA provides participants with an understanding of all facets of the modern organisation and the interdependence between them. We believe our offering stands out due to the practical focus of the programme. We have taken PwC’s experiences in working with the top businesses’ from all over the world and brought those to the classroom. We felt that too many programmes were doing the opposite and trying to apply theories from the classroom onto the business world.

With your programme launching in Abu Dhabi, you don’t seem to offer a lot of f lexibility to students in terms of study location. Would an online degree possibly be the programme structure of the future for PwC’s Mini MBA?

International professional qualifications (ACCA, CIA, DipIFR, CIMA Diploma in Performance Measurement (Arabic), CPA, CFA) Our courses are offered in two formats:

Open training courses accessible to the public

Internal training courses customised to individual clients’ needs

Our training courses are continually evolving.

We are always open to working with clients to develop new courses to meet their needs and ensure their professional development objectives are met.

In today’s competitive job market, a credential next to one’s name can help their resume stand out. Why is it important for professionals to gain a PwC Mini MBA qualification? What does your programme offer to stand out from the crowd of other

Although the initial launch is in Abu Dhabi we will also be launching the programme in Dubai this fall and then throughout the Middle East. We would be hesitant to launch an online programme as much of the value comes from the interaction between fellow participants and also with our facilitators.

Although we never rule anything out, this interaction can be difficult to replicate with an online platform.

As the programme coordinator and Partner at PwC’s Academy what would be your role? Are you teaching any modules?

If so, which one(s)?

"We do have plans to expand our footprint. Outside of the UAE, we will look to launch in Qatar as early as this fall with subsequent launches to follow, including Egypt and Kuwait in 2014."

33

Career Movers & sHakers DevelopMent

"Our training courses are continually evolving.We are always open to working with clients to develop new courses to meet their needs and ensure their professional development objectives are met."

My initial focus is to ensure that we have the best people possible involved in the programme, However I would love to present the Accounting & Financial Management module in future.

Recently, a number of business schools have begun providing Mini-MBA courses through their distance learning programmes.

If your programme proves successful, would you consider to expand your global footprint and maybe launch in other cities in the region? What are your plans for the next five years in terms of programme development and expansion?

Yes we do have plans to expand our footprint.

Outside of the UAE, we will look to launch in Qatar as early as this fall with subsequent launches to follow, including Egypt and Kuwait in 2014. Our vision is to have the programme running throughout the Middle East within the next 2-3 years. Additionally we are also looking to develop industry focused Mini-MBA programmes such as oil and gas, financial services, and telecommunications.

Most of Master programmes offered by institutions require work experience from prospective applicants. So, working professionals, fresh students, business starters - Who should take the Mini-MBA Programme? What kind of profile is your programme looking for? On the same note, tell us more about your collaboration with the UAE Academy.

The programme is very practical in nature, providing immediate takeaways for the participants. Thus we feel it is best suited for working professionals and entrepreneurs.

Additionally much of the learning is based on the participants own working experience.

In rare circumstances we would also accept fresh students if we felt they could add value to the programme.

34 May 2013

The UAE Academy has an excellent reputation and track record in their training work. We have worked with them on several training initiatives and have been pleased with the collaboration. With their ties to the Abu Dhabi School of Management we believe it is a good collaboration for the Mini-MBA. What has been the response regarding enrolment to your programme in the UAE? Kindly give us the exact number of students who have registered to pursue the programme.

Thus far the response has been overwhelmingly positive. Our programme has fulfilled a real demand in the region and the response confirms this. We have closed the programme at 15 participants as we feel this is the ideal number to provide both diversity of experience and ample opportunity for all participants to be intimately involved.

Tell us more about the exams. What are the pre-requisites required for anyone

CREATING AN EDGE: "Through the network of PwC’s Academies we continually exchange best practices and successful methodologies to ensure that we are consistently providing industry leading training programmes."

Movers Career DevelopMent & sHakers

interested in pursuing the Mini-MBA course. What is the certification or license procedure afterwards? Does it read ‘MiniMBA’?

As this is not an academic MBA we do not have stringent educational or test based prerequisites. Our focus is based on assuring that participants have suitable working experience. In terms of assessment we use Harvard Business School case studies and provide participants feedback for their future professional growth.

Upon completion we provide all participants with a PwC Mini-MBA certificate of completion. As an industry based Mini-MBA we are not seeking to provide academic credentials.

Some say that the education taught in classrooms is different from the actual onthe-job skills necessary for success. As an educator, do you think there needs to be

continuous adjustments in the education curriculum to bridge the gap?

I have spent most of my career in the business of professional education and I’m a strong believer that it is best delivered by those who have the professional experience to enhance the learning. Educational curriculums must be adjusted but they can never keep pace with the ever changing modern business world. I think that the sharing of experiences and best practices from current working professionals can help to bridge the gap. This is the inspiration behind the Mini MBA – bringing the experiences of PwC professionals into the classroom.

Accounting and finance in particular have evolved from their initial traditional functions and developed into a broad field encompassing a number of disciplines including book keeping, auditing, taxation, forensic accounting, new standards etc. When admitting potential students into your Mini-MBA programme, do you really consult with them to understand what their individual needs are in terms of the roles and sectors where they work, in order to tailor their courses accordingly?

We aim to meet with each prospective participant before they begin the programme to ensure that they are suitable and to learn what they hope to take out of the programme.

We cannot tailor the curriculum to meet the needs of every participant however we can make adjustments accordingly. For example if some participants are particularly interested in corporate governance we are happy to invite one of our PwC specialists to come speak on the subject. This is the advantage of our extensive network.

We also provide bespoke in house corporate training where we customise the course content to the client needs. We are currently working with several large organisations in the region to adapt our materials to steer the learning outcomes inward towards their own organisation. Thus we adapt specific topics and case studies to ref lect the firm’s current situation. This has been extremely popular with firms looking for comprehensive, customised learning solutions for their management teams.

35

CAReeR DevelOpmeNT

RAINBOW NATION

KPMG launches a Global Centre of Excellence that provides insights on seven key issues faced by family businesses…

K

PMG HAS announced a new collaboration with Young Presidents’ Organisation (YPO) that provides all members of YPO’s Global Family Business Network (GFBN) with exclusive access to knowledge on family businesses.

Abdul Wahab Al-Halabi, KPMG’s Head of Family Business in the UAE

Family-owned companies have specific needs.

To support them in their challenges, KPMG International has set up a Global Centre of Excellence dedicated to family business. This initiative offers greater access to knowledge and expertise available across the global network of family-owned companies.

“Our collaboration with KPMG helps us further our mission of strengthening families, businesses and legacies by connecting members to one another and to the best resources in the world,” says GFBN Director Vicki Novikoff Barnhart.

Seven key issues of family business KPMG’s Centre of Excellence for Family Business takes the form of a dedicated team based in Paris and a combination of practitioners from KPMG member firms and independent experts such as Christine Blondel (Senior Advisor to KPMG on Family Business Intelligence), an adjunct professor of Entrepreneurship and Family Enterprise at the Wendel International Centre for Family Enterprise at INSEAD.

KPMG’s Centre of Excellence provides insights on seven key issues of family business, that KPMG calls the Family Business Rainbow, including: i) Growth ii) Governance iii) Assurance iv) exit strategies v) wealth preservation vi) philanthropy vii) succession and next generation

KPMG’s Family Business approach utilises the combination of these seven needs. By sharing 36 may 2013

family business best practices and know-how, KPMG professionals will contribute to and increase knowledge of family businesses. Publications, articles, surveys and opinions are already available on the blog www.kpmgfamilybusiness. com. Updated on a daily basis, the blog is available in more than 30 countries.

Abdul Wahab Al-Halabi Head of Family Business in the UAE said that “the combination of GFBN and KPMG creates a powerful platform which will enable a wide network of family business to benefit from the four decades of insights KPMG has developed in supporting family businesses in the region.”

The Sages Family: a Case Study In order to learn more about typical family business issues, KPMG created a family business story: the Sages family case studies, which follow a fictional family through the entrepreneurial success of a little grocery shop created in the 1950s that has become a significant retail group.

Through this story, we can discover various challenges family members face: ownership succession, governance and family constitution, growth financing, international expansion, wealth management and philanthropy, shareholders’ agreement and more.

Each case study is published on www. kpmgfamilybusiness.com and comes with an analysis of the situation and key learning points.

You can also watch the trailer of the Sages Family on story.kpmgfamilybusiness.com.

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TAX WATCH

MENA STATES MULL

TAX AMENDS Lowering of corporate tariff rates expected to increase Foreign Direct Investment inflows…

L

OWERING OF corporate tax rates by Middle East and North Africa (Mena) governments is expected to increase the flow of Foreign Direct Investment (FDI), according to experts at Ernst & Young’s Mena Tax Conference 2013 held in Hong Kong, recently.

However, as a consequence of lower tax collections, tax authorities in a number of countries in the Mena region are actively also considering and implementing changes in tax policy and compliance requirements that are likely to have significant effect on local taxation environments.

The conference’s wide range of topics included increased focus on transfer pricing, the importance of thin capitalisation rules, withholding tax for non-residents, the interpretation of tax law, considerations for tax exemptions, Value Added Tax (VAT), customs and sales tax in the region and tax treaty networks.

Promoting Foreign Direct Investment One of the most important trends in the GCC and Mena has been the increase in FDI as a result of attractive business opportunities and favourable lower taxation rates. This is particularly so in the GCC, where between 2003 and 2011, GCC countries attracted over 79% of FDI projects in Mena, comprising over 62% of 38 May 2013

“One of the factors defining the fiscal landscape in the Mena region is the low corporate tax rate prevalent in many countries,” says Sherif El-Kilany, Mena Tax Leader, Ernst & Young.

the value of business projects and over 65% of the jobs created. The GCC Trio (the UAE, Saudi Arabia and Qatar) maintain the lead, both in terms of numbers and investor expectations.

Investment opportunities are highly attractive in these countries as international investors benefit from larger internal markets, more accessible customers, a stable political environment and enhanced transport and logistics infrastructure.

TAX WATCH

While 100% foreign ownership is permitted in the construction sector, direct investment is permitted both in resident capital companies and through the establishment of branches of non-resident companies. Saudi currently boasts 24 double tax treaties (DTA), aiming to facilitate trade and development.

UAE is the second largest recipient of FDI in the Arab World after Saudi Arabia. It was complemented by the number of DTAs signed between the UAE and other countries, which have surged by more than 40 per cent in the past four years, and this trend is expected to continue.

24

Double tax treaties (Dta) that aim to facilitate traDe anD Development in sauDi.

Sherif El-Kilany, Mena Tax Leader, Ernst & Young, said: “One of the factors defining the fiscal landscape in the Mena region is the low corporate tax rate prevalent in many countries, with the effective corporate tax rate in Qatar at 10%, Oman 12%; Iraq and Kuwait 15%, and Saudi at 20%. However, the need for effective taxation is creating an increasingly challenging tax environment in many countries, with more stringent tax compliance measures being introduced by tax authorities.

GCC countries are collectively studying the possibility of VAT implementation by 2015 and this determination will inf luence the tax landscape of the entire region.”

Saudi Arabia leading the way Saudi Arabia has effectively applied a lower taxation rate and has facilitated foreign ownership of business and investment ventures within the Kingdom. It is the largest recipient of FDI in the Arab world.

The need for effective taxation is creating an increasingly challenging tax environment in many countries, with more stringent tax compliance measures being introduced by tax authorities.

The taxation environment in Kuwait is steadily evolving to further facilitate trade within the region. GCC-owned companies are exempt from paying applicable taxation, while foreign companies are liable for a 15% tax rate, a significant drop from the previous 55% tax rate.

No anticipated amendments Qatar has also witnessed significant recent changes. As of February 2013, Qatar holds 53 effective DTAs, with a further 28 not yet in force. Presently, there are no anticipated amendments to the tax laws in Qatar, whilst the established laws take full effect.

As Iraq becomes a more established market within the Mena region, tax rates have been fixed at 15% for FDI. Progressive rates ranging from 3% to 15% are applied for individual employee’s income tax. The country imposes indirect taxes on customs, property and sales ranging from 5% to 30% depending on the nature of the business and investment sectors.

As foreign investment opportunities increase, tax exemption has also been introduced in Iraq for certain contracts that were signed after 2010. Contracts exempt from taxation were those financed by the Investment Fund, executed in Iraq’s Free Zone, and or those aiming to encourage investment promotion.

“The region has witnessed fundamental shifts in the direction of taxation laws to accommodate further FDI. This is done by facilitating and easing processes pertaining to application and registration. Additionally, the region is set to witness a rise in infrastructure development resulting in higher FDI based activity within the GCC specifically, and MENA in general,” said Sherif.

39

IFRS SPECIAL

THE FAB 5

Rakesh Pardasani, partner at RSM Dahman audit firm, takes a look at the changes in IFRS relating to Consolidations and Joint Venture entities…

J

UST LIKE the 'Law of Fives' applies in maths, science, culture and even religion, we accountants finally have our own ‘Fab 5’. Yes, I’m referring to the set of five new and revised standards that just became mandatory for the first time for many entities on January 1 2013. rakeSh ParDaSani Partner - rSM DahMan

IFRS 10, 11, 12 and Revised IAS 27 and 28 relate to investments in subsidiaries, associates and joint ventures and the catch for early adoption was that if you adopted one of these, you had to adopt the full pack of the five standards.

I’ve tried to analyse in relatively simple terms, why did these changes come about, what exactly has changed and who should be thinking about their impact.

Why IFRS 10?

Those of you who have prepared consolidated or separate financial statements would be aware that their accounting treatment was covered under IAS 27 – Consolidated and Separate Financial Statements. If you thought IAS 27 alone was sufficient and clear enough in your particular case to decide whether an entity was a parent or a subsidiary, then in most probability, you will not be much affected with IFRS 10 replacing IAS 27 for consolidated financial statements.

So, essentially in the case of a parent controlling a subsidiary by holding majority voting rights, there isn’t any change either in the concept of consolidation or in the process and mechanism.

40 May 2013

The problems however arose for a few special cases which included:

a) Special Purpose Entities (SPEs). This term SPE was used to describe entities created to accomplish a narrow and well-defined objective, for instance to effect a lease, research and development among others. For such cases, SIC Interpretation 12 was issued to offer guidance on the issue of ‘Under what circumstances an entity should consolidate an SPE’. SIC 12 concluded that the emphasis is on whether the investor shares the risks and rewards of the investee; b) Cases where an investor controls an entity but has less than majority of the voting rights; and c) In agency relationships.

IAS 27 defined control as “the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities” while SIC 12 placed emphasis on risks and rewards which some applicators found to be inconsistent.

Honestly, most of you including me wouldn’t really find much inconsistency in these two concepts. But there are some situations where such minor differences can affect judgment and create inconsistent applications.

With a view to removing such inconsistencies, IFRS 10 was introduced with a new clearer definition of control which we will see below.

What changes?

IFRS 10 gives a new definition of ‘Control’:

IFRS SPECIAL

AreA

IAS 27 And SIC-12

IFrS 10

Definition of control

Paragraph 4 of iaS 27 defines control as the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Paragraph 6 and 7 of iFrS 10 define control as when an investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. thus, instead of laying emphasis on voting rights, the definition talks about power and returns which is similar but more than that it focuses on the ability to exercise the power to affect most relevant activities that affect returns.

Voting rights versus Power

Paragraph 13 lays emphasis on voting rights in order to decide whether an investor controls an investee.

Potential voting rights may convey control if currently exercisable.

Paragraph 10 to 14 talk about power and clarify that apart from straightforward cases where power comes from voting rights, power could also result from contractual arrangements.

Potential voting rights have a broader range of indications under iFrS 10.

Special purpose entities (SPes)

as mentioned above, SiC-12 offers guidance on SPes, which primarily links control to risks and rewards.

iFrS 10 doesn’t separately talk about SPes. the above concepts need to be applied on SPes to determine control.

Principal – agent relationships

iaS 27 doesn’t provide any guidance in case of principal - agent relationships. at times agents hold voting rights on behalf of the principal which created some ambiguity while applying the voting rights criteria to establish control.

iFrS 10 however contains detailed guidance on principal – agent relationships. Paragraph 18 clarifies that the agent does not become a parent if it exercises the power given to it by the principal because the powers given to the agent are restrictive and he does not have the ‘ability’ to control the most relevant activities of the entity.

So essentially, if your companies do not have any of the above complications, you can safely continue accounting under IFRS 10 as you were under IAS 27. In case of the above issues, there is a possibility of a change in accounting treatment and would need further analysis of the case.

On a lighter note, you could remember the definition of control as an MCP would, that is; If you have power over your wife; and

She does give you all her earnings because of 41

IFRS SPECIAL

the fact that you’re her husband; and

If you can influence her decisions regarding her employment choices;

She would qualify to be your subsidiary and you could consolidate her earnings with yours.

What doesn’t change?

Once the issue of control is decided, the mechanics of consolidation process do not change.

Effective date and the High Five condition IFRS 10 is mandatory for accounting periods beginning on or after January 1, 2013. Thus companies with a December 31 year end will have to apply this IFRS for the first time this year, if not already early adopted.

Early adoption is permitted. However, the entity will have to adopt the full pack of five new and amended standards:

IFRS 10 – Consolidated financial statements (replacing parts of IAS 27);

IFRS 11 – Joint arrangements (completely replacing IAS 31 – Interests in Joint Ventures); IFRS 12 – Disclosure of interests in other entities;

Revised IAS 27 – Separate financial statements (This standard still applies to separate financial statements); and Revised IAS 28 – Investments in associates and joint ventures.

As would be thus obvious, all the above five new and amended standards are mandatory for accounting periods beginning on or after January 1, 2013.

I guess, this is enough technical stuff for now. We will look at the changes in accounting treatment for jointly controlled arrangements in the next month’s issue.

Rakesh Pardasani regularly blogs at www.rsmdahman.com/blog

AreA

IAS 27 And SIC-12

IFrS 10

Consolidation exemptions

Paragraph 10 of iaS 27 lays down certain exemptions from preparation of consolidated financial statements.

Clause (a) of paragraph 4 provides similar exemptions from preparation of consolidated financial statements.

Consolidation procedures

iaS 27 describes consolidation procedures to eliminate intergroup balances and transactions, account for non-controlling interests, reporting dates and accounting policies.

there is no change in the consolidation procedures under iFrS 10.

it also lays down treatments for acquisition and loss of control.

Separate financial statements

42 May 2013

iaS 27 provided guidance on preparation of separate financial statements where the consolidation exemptions were met.

iFrS 10 doesn’t apply to separate financial statements. if the consolidation exemptions are met and the entity wishes to prepare separate financial statements, they have to refer to iaS 27.

Personality & Practice

Pe-aK Player

As one of the Grand Fathers of Private Equity in the region, chartered accountant Imtiaz Hydari’s career journey has taken a fair amount of twists and turns characterised by wars and crises, bulls and bears and everything else a challenging job in the Middle East brings with it‌ 44 May 2013

Personality & Practice

Shane PhilliPS Managing Director, Shane PhilliPS conSultantS

“W

ORKING IN Saudi Arabia was an amazing experience.

I brushed shoulders with danger at least once… towards the end of the Gulf war when a scud exploded close to where I was and there was always the feeling that these missiles being fired indiscriminately could hit anything - but I had a lucky escape,” says Imtiaz Hydari, Chairman of Rasmala Investments.

As one of the Grand Fathers of Private Equity (PE) in the region, Imtiaz’s career has been awash with interesting experiences as he has been through his fair share of bulls, bears, wars, crises, and everything else a challenging career in the Middle East brings with it.

Imtiaz was one of the key architects of the famous Inchcape deal; a 150 million US dollar acquisition which eventually led to the founding of the now famous private equity house, Abraaj Capital.

High street finance How did he rise to the top of an industry most executives can only dream of while salivating over the thoughts of high street finance acquisitions and value creating mega-mergers?

It all started when he decided to become an ICAEW Chartered Accountant.

“In high school I was a keen sportsman. I played cricket for my school and my college, I got good grades but was not the top of the class. For me my mind was on life beyond academics,” says Imtiaz.

Imtiaz Hydari, Chairman, Rasmala Investment Bank

Deep down inside he knew there was something big waiting for him but was not sure what it was.

The standard at the time was to follow in your father’s footsteps which in Imtiaz’s case, 45

Personality & Practice

would have meant becoming an engineer.

His undergraduate degree was in Physics and Mathematics, not business, but things changed when one of his friends at the time said “you know there is this thing called a Chartered Accountancy, where you apprentice and you start your course with actual work experience. So, while you study you work and actually get paid!”

Mentorship is very important The thought of getting paid to study was music to his ears and there lied the seed of a career path that would witness his ascent to become the CEO of one of the most powerful business houses in the Kingdom of Saudi Arabia, The Olayan Group.

“Becoming an ICAEW chartered account is a tough path and you need a lot of energy and passion to get through the intense training and studying required but when all is said and done, it gives you the right skill set if you want to be in business,” he says.

“When I started my career I was not sure where things would lead, but my father encouraged me to trust my instincts and even to this day I am a big believer in ‘trusting one’s gut’. Of course you have to temper this with good analysis and sound strategy, but the bed rock of any decision I make is rooted in my gut feel.”

Good fortune smiled on Imtiaz as he started his career, as he was given the opportunity to article under one of the main partners for Ferguson & Company in Pakistan. After six months his senior partner suggested he should go and finish his Chartered Accountancy in London. Advice that was well received as Imtiaz did just that.

“Mentorship is very important. Everyone has capabilities beyond what they can imagine and clearly having a good mentor is critical to realising your potential. I think people should seek a mentor early in their career.” says Imtiaz.

Brilliant career decision After becoming an ICAEW Chartered Accountant Imtiaz’s career started to take shape. Following a brief stint in industry and commerce in the UK, “I was headhunted to Saudi Arabia, and this was before the oil price jumped in the early 70s so Saudi was nothing back then, but my instinct told me 46 May 2013

this was the opportunity I was looking for,” the executive says.

Little did Imtiaz know he was joining the now iconic Olayan Group. Working for the legendary entrepreneur and founder of the group Sheikh Suliman Olayan - would prove to be a brilliant career decision and a catalyst to his professional development.

Sheikh Suliman was not always a Sheikh, he had humble beginnings; starting out as a mere translator for Saudi Aramco, the gargantuan oil company and jewel in the crown of the Kingdom’s economy.

Aramco was building its infrastructure at the time and Suliman Olayan’s boss at the oil company suggested he provides light logistics support in exchange for a small contract. He asked his boss to allow him to resign as he wanted to focus on the trucking business full time. Reluctantly his resignation was accepted and Sheikh Suliman went into business full time.

Personality & Practice

“Becoming an ICAEW chartered account is a tough path and you need a lot of energy and passion to get through the intense training and studying required, but when all is said and done, it gives you the right skill set if you want to be in business.” subsidiary, and eventually I was fortunate enough to be trusted with the position of president of the entire operating group. It was a journey which took 22 and a half long years, not an overnight thing.”

“I have been very fortunate and have had fun at every moment in my career. Who would have known what life had in store for me when I first decided to become an ICAEW Chartered Accountant?”

“Success in my humble opinion, in any shape or form comes over a period of time. It comes as a result of honing your skills and having an open mind that you are ready to learn,” says Imtiaz.

“This was a fascinating time and each day was a new learning experience interacting with colleagues from different social and professional backgrounds, from JV partners of multi- national firms and friends from the local community.”

Cut above the pack From one truck and meagre earnings, the Olayan Group has grown into one of the largest business conglomerates in the GCC and now competes on the global stage with Fortune 500 companies.

Spread his wings and fly Sometime during this period, Imtiaz also worked closely with a man by the name of Arif Naqvi at Olayan Group. The two men would later join hands to found Abraaj Capital as well as execute some of the legendary private equity transactions such as the de-listing of Aramex from the New York Stock Exchange.

Imtiaz joined the company in its infancy and not only had front row seats to the vertical ascent of the Olayan Group, but also played an active part in its success.

He went back to London to pursue Consulting and Business Advisory activities. It was during his time in London that he was introduced to the FTSE 250 company Inchcape initially to help identify an automotive acquisition opportunity in the Middle east which led to his involvement in the divestment of Inchcape’s Middle East business.

“The Olayan Group pioneered the region’s first JVs with Fortune 500 companies; The founder was a cut above the pack and a clear game changer for the way business was done in the Kingdom of Saudi Arabia. The example of this remarkable person reminds me of a quote by Steve Jobs when he said “Only people who are crazy enough to think they can change the world are the ones who actually do,” he adds.

“I started initially as an internal auditor, and then moved up to finance manager of its largest

From 1973 to 1995 Imtiaz worked with the Olayan Group, the last five years as Group President and Chief Executive Officer and after over 20 years he decided it was time to spread his wings and fly on his own.

Acting for the ‘Buy’ side, Imtiaz teamed up with his friend and former colleague Arif Naqvi

47

Personality & Practice

“Mentorship is very important. Everyone has capabilities beyond what they can imagine and… clearly having a good mentor is critical to realising your potential. I think people should seek a mentor early in their career.”

under the banner of Cupola to acquire the $600 million turn over business which included brands such as Nestle, Reckitt & Colman, SmithKline Beecham, Spinneys, and many other business units.

Dreams went up in smoke Raising $150 million was no small task but the Imtiaz and Arif team was excited by the challenge. How the landmark acquisition was completed with a mere $3 million in equity has been the subject of much discussion and often rumour mongering in business circles.

“We had pipe dreams of building up the business and then IPO’ing it on the local stock exchange, but those dreams went up in smoke pretty much immediately after we purchased the business,” he recalls.

“Having never done anything like this before, we did not anticipate that the biggest challenge was not raising the money, it would be managing our local partners. I think in hindsight the local regional partners were in shock when they were told that Inchcape, a FTSE 250 company which was founded in 1847 was no longer involved in the business and ‘a company called Cupola owned by Pakistanis’ were their new partners,” he says with a chuckle.

“They reacted to this perhaps with some moral justification and did not let us manage the business as per our legal rights. We were literally up against giants, some of the most powerful local businessmen in the region. A melee of discussions, legal proceedings and intense negotiations ensued and in the end I think we made even more money than our original plan allotted for.”

Blessing in disguise It took Imtiaz and Arif four years to settle the disagreements with their local partners but in 48 May 2013

the end a series of concessions were made and various pieces of the business were sold off to various individuals which netted Cupola more profits than it would have if they sold it all together; a true blessing in disguise.

The deal would coin the two as the Grand Fathers of Private Equity in the Middle East. The transaction was such a roller coaster ride that a book about the deal is being released in June this year, authored of course by Imtiaz himself.

It is a story peppered with cameo appearances by the who’s who of the region, the next leg of the journey sees Imtiaz and Arif team up with Ali al Shihabi, founder and then CEO of Rasmala Private Equity, but soon after, there was an amicable separation and the split from Rasmala led to the founding of Abraaj Capital.

“We conceived the idea and plans for private equity in Al Moosa Tower 1 on Sheik Zayed road and later moved to Emirates Towers when we

Personality & Practice

joined hands with Ali Shihabi and Rasmala.

It was 2002 and Dubai was nothing what it is today and no one could have predicted what a wild ride we were in for,” he narrates.

“After completing the Inchcape transaction we were introduced to Fadi Ghandour, the founder of Aramex which was the first Arab company to list on the NASDAQ in New York. In reality though, it did not make sense to be listed in the USA and so we went on to help him de-list the company, add value and then re-list it on the local stock exchange. I must say getting the chance to work briefly with a visionary like Fadi was exciting.”

Odd twist of fate By 2004 Imtiaz was ready for a new challenge and seeing as his son had just completed his MBA it seemed like a great opportunity to start his own firm and mentor him in the art of private equity. Imtiaz founded HBG Holdings and in an odd twist of fate, HBG “When I started my career I was not sure where things would lead, but my father encouraged me to trust my instincts and even to this day I am a big believer in ‘trusting one’s gut’.”

took a major position in European Islamic Investment Bank, which in 2012 acquired Rasmala Investment Bank; bringing Imtiaz almost full circle to where he is now the Chairman of Rasmala.

“I have been very fortunate and have had fun at every moment in my career. Who would have known what life had in store for me when I first decided to become an ICAEW Chartered Accountant?”

“I have to be very thankful because as you know no-one accomplishes anything by themselves. I have had the chance to work with some of the most iconic businessmen in the region; as well the teams supporting me were of the highest calibre. I think to be successful you need the three Ps, passion, perseverance, and positivity.

If you combine those three things, you develop the right attitude which leads to success.”

The best is yet to come When asked about his take on leadership, Imtiaz says, “In my humble opinion, to lead you need to have courage. Over the past three decades I have faced all kinds of challenges and most of them very unique. As an example, during the Gulf War, everyone was understandably nervous.

There was fighting in our backyard and many people were concerned about coming to work particularly in the Eastern Province. I made a point of driving around to all the businesses, and made myself very visible, working on the front lines, on the shop floors. You have to lead from the front when you are in a crisis. I think that makes a big difference and also funds your empathy for your team.”

“By and large you need to show your team respect and demonstrate that you believe in them, in my experience people respond to this type of approach. Bring the best out in your people and that is the only way you can succeed as a leader. Finally you have to keep your feet on the ground and don’t let humility become a stranger, because without your team you are nothing.”

“No one can climb Mount Everest alone, everyone plays a critical role in getting you there and you need to appreciate that. Personally I feel very lucky and want to thank everyone who has worked with me over the years, and of course those of you who are yet to work with me as well because I am sure the best is yet to come.”

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AUDIT InSIghT

The DFSA regulates a broad range of firms based in the Dubai International Financial Centre, including banks, insurers, fund managers, advisory firms and brokers, exchanges and clearing houses, together with credit rating agencies, Registered Auditors and other ancillary service providers.

DFSA KEY AUDIT REPORT OUT Regulator releases monitoring programme aimed at assessing whether Registered Auditors in the Dubai International Financial Centre meet the appropriate international standards which include: the International Standards on Auditing, the International Standard on Quality Control and the Code of Ethics for Professional Accountants (Code of Ethics) issued by International Federation of Accountants (IFAC)‌ 50 May 2013

AUDIT InSIghT

T

HE DUBAI Financial Services Authority (DFSA), has released its first audit monitoring programme, which covers audit inspections conducted by the DFSA in the period January 1 2008 to December 31, 2012.

This report complies with the International Forum of Independent Audit Regulators Core Principles for Independent Audit Regulators and aims to promote high-quality external audits of financial reports issued in accordance with Chapter 8 of the GEN Module (DFSA Rulebook).

The purpose of this audit monitoring programme is to assess whether Registered Auditors (RAs) in the Dubai International Financial Centre (DIFC) meet the appropriate international standards which include: the International Standards on Auditing (ISAs), the International Standard on Quality Control and the Code of Ethics for Professional Accountants (Code of Ethics) issued

by International Federation of Accountants (IFAC).

During the period covered by this report, the DFSA conducted thirty three (33) on-site assessments, assessed fifty six (56) Audit Principals and reviewed one hundred and six (106) audit engagement files focusing on the substance of a RA’s work and assessing whether sufficient and appropriate evidence was obtained and documented to support the conclusions reached in relation to key audit judgments.

Dubai Financial Services Authority The DFSA is the independent regulator of financial and ancillary services conducted in or from the DIFC, a purpose-built financial freezone in Dubai.

The DFSA regulates a broad range of firms based in the DIFC, including banks, insurers, fund managers, advisory firms and brokers, exchanges and clearing houses, together with credit rating agencies, RAs and other ancillary service providers. These Firms provide a wide range of services to their clients, including Islamic finance.

In addition to regulating financial and ancillary services, the DFSA is responsible for supervising and enforcing Anti-Money Laundering and Combating the Financing of Terrorism requirements applicable in the DIFC. The DFSA has also accepted a delegation of powers from the DIFC Registrar of Companies to investigate the affairs of DIFC companies and partnerships

where a material breach of DIFC Companies Law is suspected and to pursue enforcement remedies that are available to the Registrar.

With respect to RAs, the DFSA is responsible for the registration, oversight and suspension/ removal of RAs in the DIFC in respect of Authorised Firms (AFs), Authorised Market Institutions (AMIs) and Public Limited Companies.

Key findings Reviews of engagement files across RAs inspected raised a number of issues about the sufficiency and appropriateness of evidence obtained by RAs to support their conclusions on significant areas of the audit. Key findings were mainly in the areas outlined below: i) Professional scepticism

Professional scepticism must be maintained and exercised throughout the planning and performance of an audit.

Audit principals and staff should have questioning minds, obtain a full understanding of all relevant facts, not be over reliant on management’s explanations and representations, and not just seek to obtain audit evidence that corroborates rather than challenges management’s judgment. ii) Going concern

ISA 570 - Going concern requires an auditor to evaluate management’s assessment of an entity’s ability to continue as a going concern.

33

On-site assessments cOvered by dFsa, during the periOd cOvered by this repOrt 51

AUDIT InSIghT

In five (5) audit engagement files, there was a lack of evidence that the Audit Principals challenged evidence provided by the management of the AF to support their assumption that the entity was a going concern. iii)Independence of employees

The DFSA noted that six (6) RAs retained the passports of their employees. The argument put forward by those RAs was for security purposes, however, evidence suggested that this might not be the reason.

The DFSA is of the view that the retention of an employee’s passport may affect the independence of those employees in terms of raising their concerns (if any) on a particular audit.

Subsequent to our on-site assessments, these RAs confirmed that they had returned the passports of their employees. The DFSA will continue close monitoring of issues relating to the independence of employees. iv) External confirmations

Audit evidence in the form of external confirmations received directly by the auditor from confirming parties may be more reliable than evidence generated internally by the entity.

On eight (8) audit engagement files, the audit teams failed to receive external confirmations from independent third parties. They did perform alternate procedures on one (1) file to satisfy themselves however on the remaining seven (7) files, no alternate procedures were carried out nor did the files did contain an adequate explanation as to why any alternate procedures were not carried out by the engagement team.

On eighteen (18) audit engagement files, there was no trail of the confirmation process, while fifteen (15) engagement teams failed to keep proper control over the external confirmation process as required

by ISA 505 – External confirmations. These RAs prepared the confirmation letters, provided the same to their clients in soft copy and allowed the client to send the confirmation to the relevant banks.

Implementation of Clarity ISAs In 2009, the International Auditing and Assurance Standards Board issued Clarity ISAs which were effective for audits of financial statements for periods beginning on or after 15 December 2009.

52 May 2013

Auditors should have questioning minds, obtain a full understanding of all relevant facts and not be over reliant on management’s explanations and representations.

AUDIT InSIghT

As per the International Federation of Accountants’ Code of Ethics, providing services such as preparation of financial statements for an audit client creates a selfreview threat when the auditor subsequently audits these financial statements.

In relation to a number of the DFSA’s inspections during the Period, the Clarity ISAs were not yet effective. Moreover, the DFSA reminded the RAs to make adequate arrangements to implement Clarity ISAs for audits of financial statements for periods beginning on or after 15 December 2009.

Self-review threat As per the International Federation of Accountants (IFAC) Code of Ethics, providing services such as preparation of financial statements for an audit client creates a selfreview threat when the auditor subsequently audits these financial statements.

An auditor may provide services related to the preparation of financial statements based on information in the trial balance to an audit client which is not a public interest entity so long as any self-review threat created is reduced to an acceptable level.

In any case, the significance of any such threat created shall be evaluated and safeguards applied when necessary to eliminate the threat or reduce it to an acceptable level. Such safeguards include arranging for such services to be performed by an individual who is not a member of the audit team.

The DFSA noted that five (5) audit teams prepared/provided assistance with preparation of financial statements to their audit clients.

Based on the regulator’s discussions with the managers in-charge on these audits, the financial statements were prepared by the members of the audit team who subsequently performed the audit of the financial statement.

Insufficient evidence of review Under the DFSA rules, audits of Domestic AFs must be conducted by RAs registered with the DFSA. Often audit work is carried out by another office of the same network of the RA. Regardless

53

AUDIT InSIghT

Quality of audit work RAs are responsible for the quality of individual audits, and should aim to ensure that quality audits are consistently performed.

In respect of two (2) RAs, the DFSA noted issues with the quality of audit work conducted relating to both documentation and underlying audit approach.

The engagement files did not display a thorough understanding of the requirements of auditing standards. It was concluded that the audit staff did not have prior knowledge of audit requirements and had not received sufficient training.

Involvement of Audit Principal Under the DFSA rules, a RA must appoint an Audit Principal who is responsible for the direction, supervision and performance of the audit engagement.

Findings from particular files: The DFSA is of the view that the retention of an employee’s passport may affect the independence of those employees in terms of raising their concerns (if any) on a particular audit.

where the work was carried out, a RA must appoint an Audit Principal who is responsible for the direction, supervision and performance of the audit engagement.

Findings from particular files:

The audit work was conducted by another office of the same network to which the RA belonged.

The audit report was signed by the RA based on an inter-office opinion signed off by a partner from another office. The engagement letter was issued by the other office and not by the RA as required under the DFSA rules. The RA recorded its work containing reporting documents prepared by the other office. However, review work conducted by the RA was not evident on this file nor was there any evidence of Audit Principal’s review, with only the audit manager sign-off evident. The DFSA could not determine from the file what review work had been conducted by the RA in order to satisfy itself that audit evidence was sufficient.

The underlying audit work was undertaken at the office of an affiliate of the RA with the RA signing-off on the audit report based on the work done by the affiliate office. The audit engagement file included information submitted by the affiliate office but did not reflect the work done by the RA over directing the scope of the audit or contain sufficient evidence of review procedures done. There was insufficient evidence on the file of Audit Principal’s involvement on the audit with inter-office arrangements.

54 February 2013

The Audit Principal, who retained responsibility for signing the audit report, was not sufficiently involved in the audit.

A director who was not an Audit Principal managed the conduct of the RA’s audit work.

However, a different partner who was an Audit Principal signed the audit report. There was no evidence that the signing partner had been sufficiently involved in the audit process.

The signing Audit Principal was only involved at the final stage of completion and was not responsible throughout the audit for its direction, supervision and performance.

Insufficient audit work The RA should design and perform audit procedures that are appropriate in the circumstances for the purposes of obtaining sufficient appropriate audit evidence.

Findings from particular files:

No audit work was conducted on a significant revenue transaction other than obtaining a representation letter from management.

There was no other evidence on the audit engagement file.

Unsatisfactory audit work had been done on the revenue component. Random invoices were filed in the working paper file. Invoices were not

AUDIT InSIghT

cross-referred to the agreements to ensure that the entity has legal right over these invoices.

The senior-in-charge stated that he had sighted relevant documents and obtained net asset valuations but there was no documentary evidence to substantiate this statement on the file.

Unsatisfactory audit work had been done on the receivables balance. The RA failed to obtain independent confirmations from the debtors and also did not perform alternative tests.

Significant and material investment in a Special Purpose Vehicle (SPV) which had been purchased from a related entity. Insufficient audit work had been done on the SPV as a whole.

Disclosure of an asset placed as a cash equivalent Cash equivalents are defined in International Accounting Standards (IAS) 7 – Statement of cash flows as ‘short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value’.

Findings from particular files:

A significant balance was classified as cash and cash equivalents which represented an amount transferred to a related entity that itself placed it with a third party bank in its own name and not that of the AF. Although the amount was held in a bank, it was not held in a ring-fenced bank account in the name of the AF. The audit work conducted by the RA extended to seeking confirmation from the related entity only and not seeking confirmation from the third party bank.

An auditor may provide services related to the preparation of financial statements based on information in the trial balance to an audit client which is not a public interest entity so long as any self-review threat created is reduced to an acceptable level.

Audit Execution 27% of the audit engagement files inspected did not adequately document matters which were important to support the audit opinion.

Audit Conclusion

18% of the audit engagement files inspected failed to evaluate and document the aggregated uncorrected misstatements arising out of the audits; and There was insufficient documentation of work done on subsequent events on 17% of the audit engagement files inspected.

Audit Financial Statements Disclosures and Audit Report

31% of the audit reports contained references to laws that do not apply to AFs and / or AMIs; and 28% of the audit opinions did not comply with the requirements of DFSA Rulebook.

This report is an abridged version – the full report can be found on www.dfsa.ae.

Other findings: Audit Planning

26% of the audit engagement files inspected failed to show sufficient evidence that the procedures required to address the risk of fraud, as stated in ISA 240 – The auditor’s responsibilities relating to fraud in an audit of financial statements, had been conducted; and 26% of the audit engagement files inspected did not consider an auditor’s right and duty to report to the DFSA under Article 104(3) of DIFC Law No 1 of 2004.

The Dubai Financial Services Authority (DFSA) is the independent regulator of financial and ancillary services conducted in or from the Dubai International Financial Centre (DIFC), a purpose-built financial freezone in Dubai. The DFSA’s regulatory mandate covers asset management, banking and credit services, securities, collective investment funds, custody and trust services, commodities futures trading, Islamic finance, insurance, an international equities exchange and an international commodities derivatives exchange. In addition to regulating financial and ancillary services, the DFSA is responsible for supervising and enforcing Anti-Money Laundering (AML) and combating the Financing of Terrorism (CFT) requirements applicable in the DIFC. www.dfsa.ae 55

TAkINg STOCk

ANATOMY OF FINANCE TRANSFORMATION How the ‘One Baker Hughes’ initiative has helped the oilfield services giant company to overcome business challenges…

I

N 2008, oilfield ser vices giant Baker Hughes Inc faced three daunting challenges.

1. Declining rig activity was driving a doubledigit decline in the company’s margins.

2. The company’s seven autonomous divisions ― built through decades of growth through acquisitions and working in more than 80 countries — had created systemic operational complexity, duplication of effort, and significant excess finance costs.

3. A 2007 benchmarking study by the Hackett Group revealed that the company’s finance 56 May 2013

function efficiency and effectiveness ranked in the fourth quartile compared with its peers.

The impact of these factors on the business was substantial. Internal controls depended on each division’s separate audit group.

Closing the books was very difficult, because the processes varied dramatically across the 80 countries in which Baker Hughes did business at the time. Data management lacked a consistent approach. Cost synergies were being forfeited, and finance couldn’t function effectively as a strategic partner to the business.

Today Baker Hughes is a different ― and much stronger ― company, with a leaner, centralised

TAkINg STOCk

financial organisation that has saved the company tens of millions of dollars a year; helped contribute to revenues of more than $21 billion in 2012; and is expected to attain secondquartile Hackett status by the end of 2013. The transformation marks the culmination of an arduous but rewarding journey.

A complete finance restructuring In the adversity of 2008, the Baker Hughes leadership team saw a strong business case for change. The company launched an initiative called ‘One Baker Hughes’, which was designed to combine the seven former divisions to present a single face to customers and to allow the company to operate much more efficiently.

The first step for finance was a 36-month journey to transform the global finance function. The transformation programme had four objectives.

1. Provide financial analysis to improve Baker Hughes’s overall performance.

2. Support the One Baker Hughes organisation model, which is now geomarket rather than product line based.

3. Improve the control environment.

4. Drive for finance organisation efficiencies.

The initial step of the transformation was to determine how to more efficiently execute the routine, rules-based, recurring activities common to every business: backoffice payables, receivables, and generalledger transaction processing. The company ultimately decided to extract those activities from its internal shared services locations and multiple country locations, and to consolidate them into four finance delivery centers operated by a service provider.

Following the outsouricng, the company faced a second key question: What to do with what remained of the finance function? To determine the answer, the company conducted a comprehensive 10-week assessment with Accenture to establish a finance transformation strategy and a supporting roadmap to mobilise the change. That assessment revealed that Baker Hughes would be best served by completely dismantling the existing structure and reorganising finance into three new pillars.

Three years after it was initiated, Baker Hughes’s finance transformation is bearing fruit. The company has moved the needle significantly in finance function efficiency and effectiveness.

A new operating model Tremendous effort was involved in developing the first pillar, Enterprise Finance Organisation, or EFO, which consolidated the accounting, reporting, and compliance activities dispersed across multiple countries.

To promote efficiency and consistency among these groups, a new EFO operating model was created, based on standardised organisation structure, roles and responsibilities, processes, and IT platform. The standardised operations were established in 34 global locations over the course of one year.

After the EFOs became operational, Baker Hughes recognised additional opportunities to improve the EFO operating model. During a nine-month period, the company further consolidated the 34 EFOs into six Finance Regional Accounting Centres serving Latin America, Asia Pacific, Russia and the Caspian, North America, Europe, the Middle East, and Africa, respectively.

The company also created a Financial Planning and Analysis (FP&A) group to align with the business structure shift from seven autonomous business units to 22 geomarkets.

Deployed across these geomarkets, the FP&A professionals focus on making more meaningful contributions to the company’s business decisions through analytics and planning.

The third pillar is the Corporate Finance Functions entity, which handles tax, treasury, controllership, and real estate from Baker Hughes’s Houston headquarters. This group remained largely unchanged.

The only vestige of the old finance operations that are still present in the countries where Baker Hughes operates are Country Accounting Centres, which employ very small

$50 m

AnnuAl lAbour cost sAvings brought About by bAker hughes’s FinAnce trAnsFormAtion 57

TAkINg STOCk

Audits are now easier, quicker, and less expensive, with auditors able to concentrate on the six EFO Regional Accounting Centres rather than having to globetrot across multiple locations. The RAC standardised operations and robust controls have resulted in a sharp decline in the number of control issues identified during audits.

Finally, by shifting to more specialised and well defined finance function roles and building a stronger foundation for the accounting, reporting, and compliance activities, finance in Baker Hughes now has the time and resources to focus on boosting profitability.

staffs focused strictly on country statutory and regulatory activities.

Compelling business results Three years after it was initiated, Baker Hughes’s Finance transformation is bearing fruit. The company has moved the needle significantly in finance function efficiency and effectiveness. The restructuring has generated more than $50 million annually in labour cost savings alone. By the end of 2013, Baker Hughes expects it will have moved into Hackett’s second quartile in operating costs.

Furthermore, five days have been shaved from book closing—from 12 to seven—and a fiveday, paperless close is expected soon.

The new structure based on common processes and technologies has resulted in consistency of P&Ls and reports across the enterprise, which didn’t exist prior to the transformation.

This consistency enables finance and business leaders to easily compare geomarkets’ financial results and gain a clear and accurate picture of the financial health of the larger organization.

The challenges Baker Hughes faced several years ago ran deep and broad, but also gave the company’s leaders a compelling reason to change.

58 May 2013

Perhaps the greatest testament to the strength of the new finance operating model was the way in which Baker Hughes handled the integration of BJ Services, which it acquired in 2010, in the midst of implementing the finance transformation.

Pre-integration, BJ Services operated with 800 finance personnel and 23 different information technology (IT) systems. Leveraging the new operating model, Baker Hughes successfully assimilated BJ Services’ finance operations in 18 months, with no incremental expense to the selling, general, and administrative expenses of the combined organisation.

Well positioned for the future The challenges Baker Hughes faced several years ago ran deep and broad, but also gave the company’s leaders a compelling reason to change.

The ‘One Baker Hughes’ initiative, of which Finance transformation was a major component, has helped the company overcome those challenges. In particular, with a new structure, common processes and systems, and tightly defined roles and responsibilities, the Finance function has emerged as more efficient, more effective, and a strong partner to the business. Finance is now positioned to help Baker Hughes sustain its changes and positive momentum well into the future.

By Peter Ragauss, Chief Financial Officer of Baker Hughes Incorporated, Gerald Crader - Vice President of the Enterprise Finance Organisation and Chris Beaver - Vice President of the Financial Planning & Analysis Group.

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ROBERT HALF ROBERT HALF FINANCE FINANCE Job title CFO

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

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Senior Financial Analyst Financial Analyst Compliance Director Compliance Manager Compliance Officer

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roberthalf.ae 2013 Salary Guide |

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ARABIC ACCOUNTING SYSTEM

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

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29/01/2013 12:16

CoRpoRATE TREAsuRy

HANDLE WITH CARE

Treasurers should approach derivatives with caution, but not with loathing, says Sarah Boyce…

O

V ER T H E ye a r s, t he publ i c has increasingly associated d e r i v a t i ve s w i t h f i n a n c i a l disaster. Regulators now want to impose greater control on them to try to avoid a repetition of the events of 2007/8. But is this ‘fear’ justified?

What are derivatives?

A derivative instrument can be defined as ‘one whose value depends on the value of an underlying asset’; for instance, a share option is a derivative of the underlying share.

Derivatives are based on a very wide range of underlying assets, including commodities such as metals, wheat or energy and financial assets such as shares, bonds or foreign currencies. The one thing they have in common is that as the value of the underlying asset changes, so will the value

60 May 2013

of the derivative and there is no need to own the asset itself.

There are four main types of derivative product from which all others evolve:

FORWARDS AND FUTURES – a contractual agreement between two parties with a known outcome. Forwards are bespoke, that is, traded Over-the-Counter (OTC), while futures are traded on an exchange in standard sizes and maturities.

SWAPS – an OTC agreement to exchange payments on regular dates, where the payment legs are calculated on a different basis.

OPTIONS – a contract that gives the buyer the right to buy or sell an underlying asset at some point in the future.

CoRpoRATE TREAsuRy

Who uses derivatives?

Derivatives are used to manage risk, to speculate on the price of assets and to arbitrage transactions.

Hence, two distinct groups of users have evolved: TRADERS can be split into:

– Speculators who ‘bet’ on price movements in an underlying asset by speculating on price movements in the relevant derivative. They take advantage of the leverage effect (where derivative contracts, which may be worth millions if the markets move in a particular direction, only cost a fraction of that to put in place). Derivatives can be much more flexible than the underlying asset and are generally settled in cash.

Derivatives are based on a very wide range of underlying assets, including commodities such as metals, wheat or energy and financial assets such as shares, bonds or foreign currencies. always consider adverse movements whatever your bank or board might suggest).

– Arbitrageurs who are risk-averse, but will trade derivatives when they see market inefficiencies.

Make sure you understand the latest accounting rules and reporting regulations before entering into any transaction – the board will not thank you if you unwittingly reduce profits as a result of an accounting rule.

Market makers do not use derivatives as such, but create liquidity by quoting simultaneous bid and offer prices to the market, at which they are willing to buy or sell an asset.

Do not ignore liquidity risk – particularly with the increasing introduction of margining and collateral calls. Margining exists so that any changes in value are settled on a day-by-day basis rather than at maturity, but can result in large cash flows.

HEDGERS (predominantly corporates) face risks associated with the price of the underlying asset (for example, the foreign currency) and they use derivatives to reduce or transfer this risk.

Managing the risks The risks associated with derivatives can be managed if you follow a few key steps: Define your risk policy.

– Set clear policies and monitor them.

– Take limits seriously – do not ignore limits because profits are being made (losses can easily follow).

– Make sure a hedger doesn’t become a speculator; be cautious about making the treasury department a profit centre.

– Implement segregation of duties to mitigate the risk of fraud or error.

Recognise that you can’t always outguess the market, so don’t even try.

Diversify your risks – use a basket of solutions to any problem and remember that derivatives transform rather than eliminate risk.

Carry out scenario analysis and stress testing to understand all possible outcomes (remember to

Products can be complex and great care must be taken to ensure they are recorded and valued correctly.

Treat all structured products with caution (particularly overlaid derivatives). Financial products are sold to make a profit and the ‘glitzier’ products are likely to carry a higher margin for the seller. But do not exclude derivatives from your toolkit. If used in the right place at the right time, they make an extremely valuable tool.

ACT Middle East Annual Conference 2013 26-27 November 2013 |The Ritz-Carlton, DIFC, Dubai The ACT is delighted to announce the dates of the next Middle East annual conference. Currently in its fourth year, our flagship event for the region builds upon the series of events we run across the GCC, providing the perfect platform for the region’s treasury and finance community to share and promote treasury best practice.

Look out for the preview programme in May. For a glimpse of what to expect from this year’s annual conference take a look at the 2012 conference overview here: www.actmiddleeast.org/annualconference.

Special rates are available for all Accountant Middle East readers. To submit your interest in sponsoring, exhibiting, attending or speaking at this year’s ACT Middle East Annual, simply visit the website: www.actmiddleast.org/ annualconference2013 or email actme@treasurers.org.

61

EQUITY MARKETS

FRESH GREEN

SHOOTS IN EQUITY MARKETS UAE yields average Total Shareholder Return of 24% in 2012, exceeding global average of 18%, latest statistics from the Boston Consulting Group show…

24%

AverAge totAl shAreholder return (tsr) yields in the uAe in 2012

G

LOBAL EQUITY markets took a giant step forward in 2012, generating an average total shareholder return (TSR) of 18% according to a recent study conducted by The Boston Consulting Group (BCG), entitled ‘Signs of Sustainable Value Creation’.

What’s more, the results reveal intriguing clues suggesting that the global economy may be at the beginning of a more sustainable pathway to longer-term value creation.

BCG analysed the 2012 TSR of more than 5,000 companies across 40 countries and 37 industry sectors. As one might expect, emerging markets delivered among the highest average TSR—with the big winners in 2012 being Turkey, South Africa, the Philippines, and Thailand. (See Exhibit 1.)

EXHIBIT 1. IN 2012, EMERGING MARKETS DELIVERED THE HIGHEST AVERAGE TSR

UAE on the rise The UAE showed remarkable recovery in 2012, with an average TSR of 24% as compared to minus 3% in 2009-2011. UAE’s results outranked countries such as Singapore, Belgium, France, Switzerland, UK, US (S&P), Canada, Brazil, Indonesia, and China.

“The UAE has successfully augmented its aggregate TSR in 2012, as some of the sectors which have previously been negatively affected during recent years (for instance banks, real estate, construction) have performed very positively in 2012. Additionally, some fundamentals of the economy have shown a positive trend as well,” says Markus Massi, Partner and Managing Director of The Boston Consulting Group Middle East.

“A deeper dive into the UAE’s performance shows that, in 2012, six out of the top ten companies by TSR as listed on the Dubai Financial Market came from the real estate and construction sector, underlining the increase in activity in these sectors in Dubai as well as the overall recovery of the Dubai real estate market ,” Markus Massi adds.

National Central Cooling was the Dubai Financial Market Index’s top performer with a TSR of 144%, followed by Dubai Islamic Insurance (119%), Tamweel (97%), Ajman Bank (78%), Gulf General Investment (66%), Deyaar Development (65%), Air Arabia (56%), National Cement (54%), Union Properties (53%) and Emaar Properties (51%).

62 May 2013

EQUITY MARKETS

DUBAI: DUBAI FINANCIAL MARKET INDEX (#32) CONTRY PERFORMANCE 2012

MARKUS MASSI: “Some fundamentals of the UAE economy that had previously been negatively affected including banks, real estate and construction, performed very positively in 2012.”

Other global trends At least some global companies are finding ways to deliver sustainable TSR and this is reflected in the regional balance of the top-ten large-cap value creators for 2012. (See Exhibit 2.) In contrast to 2011, when nine out of the top-ten companies were from the US, the 2012 list includes companies from the US, Germany, Spain, Brazil, and Japan.

EXHIBIT 2. THE GLOBAL DISTRIBUTION OF THE LARGE-CAP TOP TEN IS RELATIVELY BALANCED

Although broad market trends have given some companies on the top-ten list a boost, many have clearly found a way to thrive in the current economic environment—often by leveraging global growth to fight the strong economic headwinds in their local markets.

In terms of the comparative performance of the 37 industrial sectors in the BCG study, sectors that include low-cost consumer-products companies (such as producers of personal goods and beverages) continued to do well in 2012, and hard-hit financial sectors such as insurance and banks enjoyed a rebound.

“But the relatively strong performance of traditional economic engines such as automobiles and parts, household goods and home construction, construction and materials, and general industrials suggests that a broader recovery may be under way,” added Eric Olsen, a senior advisor to BCG and a coauthor of the study.

The results reveal intriguing clues suggesting that the global economy may be at the beginning of a more sustainable pathway to longer-term value creation.

63

TEchnOLOGy TALk

GADGETS GALORE

A record one billion smartphones will be shipped in 2013, Deloitte TMT predictions for 2013, show

64 May 2013

TEchnOLOGy TALk

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H E ' D E L O I T T E Te c h n o l o g y, Media and Telecommunications (TMT) Predictions 2013' repor t was launched at Dubai Media City, revealing the emerging issues that will impact the TMT industry in the coming year.

The report, now in its 12th year, is compiled through a series of interviews with Deloitte clients and practitioners. Of the most notable findings were that a record one billion smartphones will be shipped in 2013; mobile advertising will get split into two categories— tablets and smartphones— and more than 90 per cent of user-generated passwords will be vulnerable to hacking in a matter of seconds.

Thriving business community The Deloitte TMT Predictions 2013 were launched in collaboration with Dubai Media City, as a stride towards promoting the media industry and thought leadership. Dubai Media City has grown to become a thriving business community that is home to leading international and regional brands, creating a business environment that encourages expansion and growth of business.

“This is the first time Deloitte is presenting a Middle East version of the TMT predictions, directly relevant to the region,” said Santino Saguto, partner and TMT Leader, Deloitte Middle East.

“We believe it is vital for our local clients and industry practitioners to understand the drivers that are shaping this sector across the region.

Hence, these 10 TMT predictions have been formulated to highlight where we are heading.”

End-game strategies Of the hot topics in the TMT predictions, particularly relevant for the region include an upsurge in momentum behind Long Term Evolution (LTE) mobile networks across the GCC, which experts say will need to be combined with a better understanding of endgame strategies from the new technology. In addition, leading operators across the region are likely to devote greater effort towards managing data profitability.

The Deloitte TMT Predictions report also points to advertisers who are expected to navigate in

With the splitting of ‘mobile’ advertising into separate mobile and tablet categories, advertisers should begin to consider new forms of advertising specific to smartphones, such as interactive videos or game functionality. a rapidly growing digital space, with mobile advertising emerging as a major beneficiary.

“I am pleased that Dubai Media City is able to support the launch of Deloitte’s Middle East TMT Predictions 2013. As a thriving community that has become home to many global, regional, and local media organisations, it is our duty to support research and study into the future of our sector. Identifying the key trends that will shape our industry over the near, mid and long term,” said Mohammad Abdullah, Managing Director, TECOM Investments Media Cluster.

“This report’s findings contain many valuable insights that will be able to serve as a guide to many operators whether they are in advertising, technology, broadcast production, or content development.”

“This year’s predictions cover a range of topics, from the continued dominance of personal computers (PCs) despite inferior sales relative to smart devices, the developments around LTE, and data access, to smartphones and the vulnerability of passwords,” said Paul Lee, Director, Deloitte TMT Knowledge & Research.

“With the splitting of ‘mobile’ advertising into separate mobile and tablet categories, advertisers should begin to consider new forms of advertising specific to smartphones, such as interactive videos or game functionality, and tablets meanwhile, may borrow content created for PCs as well as usage formerly undertaken on PCs.” Cheaper tablet models Additionally in 2013, the smartphone sector may globally generate $4.9 billion in revenues in 2013, while advertising on tablets may generate $3.4 billion. Revenue per unit however reveals a different dynamic: smartphone display ad revenues are forecast at $7 per

90%

proportion of usergenerated passwords that will be vulnerable to hacking ‘in a matter of seconds’ by end of 2013 65

TEchnOLOGy TALk

In the Middle East, Deloitte predicts that digital ad spend will grow at a CAGR of 35% in the region over the period from 2011 to 2015 reaching approximately 10% of the total advertising spend by 2015. tablet and $0.60 per smartphone (including inapp ads).

In the Middle East and Africa (MEA) the tablet market grew by 90% year on year – reaching a total of 1.36 million units for the fourth quarter of 2012. This surge is the result of a number of factors, including the introduction of cheaper tablet models, reduced prices by vendors, and overall rising consumer demand for these devices.

There will also be an upsurge in momentum behind LTE, with 2013 being the first year in which LTE thrives across multiple markets.

The subscriber base will triple to 200 million by year end, and those on LTE tariffs will represent about 10 per cent of all service revenues. Usage of LTE will be evolutionary rather than revolutionary: the major benefits of subscribing to LTE from 3G are likely to be better performance from existing applications from e-mail to updating social networks.

Additional highlights of this year’s TMT predictions to impact the Middle East marketplace in 2013 include: “Mobile advertising” thrives, led by tablets, but smartphone display lags — “Mobile” advertising — a category including tablets, smartphones and feature phones —should grow by 50 per cent to reach $9-billion globally. In the Middle East, Deloitte predicts that digital ad spend will grow at a CAGR of 35% in the region over the period from 2011 to 2015 reaching approximately 10% of the total advertising spend by 2015. These estimates are conservative when viewed in the context of markets such as the UK, where the shares of the digital platform in total ad spend stood at 32% in 2011.

A billion smartphones should ship for the first time ever — Usage, however, will become increasingly varied, with a growing number of

66 May 2013

smartphones owners (about 400 million out of an installed base of 1.9 billion by year –end) rarely or never connected their devices to data. In 2012, around 40 million smartphones were shipped in the Middle East, representing a growth of more than 30% over 2011 shipments. More significantly, smartphone penetration across several key markets is already in excess of 50%.

A strong year for LTE, but end-game strategies of regional operators are as yet unclear— Several LTE launches expected across the region in 2013, however operators would need to have a clearly though out value proposition for LTE.

Dual screening readies for prime time – Evidence of ownership of multiple screens in the region but television remains the predominant screen for viewing video content.

PC is not dead, it’s about usage and not units - PC sales to end-users will continue to remain strong and drive a significant portion of internet traffic.

The looming spectrum shortage : Spectrum harmonisation and re-farming critical to growth.

Over-the–top may lift broadcasters and distributors more than pure plays – Several OTT models prevalent in the Middle East but broadcasters are likely to emerge as the most likely winners.

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SALES Christopher Stevenson Tel 04 440 9138 Email chris@cpidubai.com

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

BUSINESS INSIGHTS

CHALLENGING THE STATUS QUO New research reveals Saudi women’s quest to break entrepreneurial barriers, despite enormous hurdles…

A

LTHOUGH A small but growing n u m b e r o f wo m e n i n S a u d i A r a b i a i s a c t i ve ly e n t e r i n g the cor porate world, fur ther r e g u l a t o r y, e d u c a t i o n a l a n d s o c i o cultural changes are urgently needed to promote women’s entrepreneurship a n d f u l ly r e a l i s e t h e e c o n o m i c a n d social aspirations of the Kingdom, a new research shows.

Kelly Lavelle: “Now, more than ever, the world needs to unleash women’s entrepreneurship to further strengthen economies and societies.”

The study, carried out by the Women's Entrepreneurship Initiative, a non-profit company that supports women in business, in collaboration with Ashridge Business School, is the first of its in kind in the region whereby 37 aspiring and established Saudi women entrepreneurs engaged in a series of workshops and in-depth interviews.

Although Saudi women are more economically active than often perceived internationally and opportunities for economic participation are increasing, the report titled; ‘Giving voice to women entrepreneurs in Saudi Arabia’ confirms women remain vastly under-represented in the vital entrepreneurial sector.

Kelly Lavelle, Founding Director, Women’s Entrepreneurship Initiative, and report coauthor, said: “One of the distinctive features of

Although Saudi women are more economically active than often perceived internationally and opportunities for economic participation are increasing, they remain vastly underrepresented in the vital entrepreneurial sector.

68 May 2013

this work is its positive impact on many of the women who participated. The strength of their responses has been the driver to establish the Women’s Entrepreneurship Initiative (WEI) across the Middle East and North Africa region to learn, serve and enable change. Now, more than ever, the world needs to unleash women’s entrepreneurship to further strengthen economies and societies.”

Key research findings The research suggests women entrepreneurs lack essential competencies and capacities for successful entrepreneurship, including:

Self-confidence - Saudi women entrepreneurs can present themselves as confident but often suffer from an underlying lack of self-belief evidenced by hesitation in decision making, avoidance of commitment and a strong fear of judgment and failure.

Risk-taking - Female entrepreneurs show courage in following their chosen career path, but are however averse to assuming tangible risks, for instance, leaving the security and status of government jobs or seeking external funding for their businesses.

Autonomy - A lack of self-reliance, selfsufficiency and personal initiative, often resulting from social restrictions imposed upon women. This can be internalised to such an extent that they become complacent, if not complicit, in their situation.

Self esteem - The women interviewed experienced powerful emotional reactions to the gender-specific challenges they face.

They express feelings of frustration, outrage, helplessness and/or self-blame at their lack of autonomy. They also have a powerful fear of judgment and failure.

BUSINESS INSIGHTS

“If greater entrepreneurial participation of women is desired, Saudi culture will need to adapt to help them develop the personal skills and qualities needed.”

EMPOWERMENT: The Saudi Arabian government has committed to ambitious targets to enhance the economic activity of women to enable them play a more prominent role in the Kingdom’s economy.

Dr Hessah Al Sheikh, Co-Founding Director, Women’s Entrepreneurship Initiative, said: “Any procedures designed to address the exclusion of women from the Saudi Arabian economy must address the sociopolitical and cultural factors that suppress female entrepreneurial spirit and capabilities.”

Current obstacles The Saudi Arabian government has committed to ambitious targets to enhance the economic activity of women and the opportunity for women to play a more prominent role in the Saudi economy has never been greater, with a comprehensive policy addressing women’s participation in the entrepreneurship sector pending.

However current obstacles in business licensing regulations still include:

Restricted access to government services: Recently established Ladies Sections within government offices are perceived as ineffective, women entrepreneurs often prefer to rely on a male relative to help them. Also, women continue to encounter a wakeel (legal male representative) requirement when starting their businesses, as the enforcement of its removal is not consistent.

Requirement for a ‘mudeer’ (male manager) for public-facing business: Despite its official repeal many women are often still being required to appoint a male manager.

Restricted licensing options: A number of business activities that are popular among women, for example home business, are not currently available in the official licensing categories.

Lack of support services: More support is needed for the growing needs of working women in infrastructure and support services, such as transport and childcare.

Report Recommendations Dr Gill Coleman, Ashridge Business School, said: “Many of the women’s struggles identified by this work specifically reflect their position in Saudi Arabian society. If greater entrepreneurial participation of women is desired, Saudi culture will need to adapt to help them develop the personal skills and qualities needed.”

The researchers therefore make a number of recommendations to help overcome some of the barriers and allow women to play their part in driving positive change:

Review and reform women’s education to increase their economic participation. Ensure greater focus on fostering entrepreneurship competencies, skills and qualities.

Create opportunities for women entrepreneurs to support each other through networking events, workshops and change programmes.

Address gender-specific challenges in the regulatory environment to improve women’s access to government business licensing services, for instance, create a home-business license, and ensure enforcement of positive women-targeted policies.

Improve women-targeted entrepreneurship initiatives and funding sources. Establish a central information and advisory service, and provide training support.

Invest in support services and infrastructure, such as public-funded transportation services for women and subsidised childcare.

Promote awareness of the positive economic role and contribution of Saudi businesswomen.

69

IslamIc FInance

IslamIc FInance

In RussIa gaIns tRactIon Recently, Dubai’s ruler Sheikh Mohamed Bin Rashid Al Maktoum unveiled a plan to transform the Emirate into a global economic centre for Islamic countries. Other cities which aim to become centres for Islamic products are Kuala Lumpur, Jeddah, London and Moscow. Vladislav Zabrodin and Anna Leksashova discuss the increasing level of Islamic activity across Russia’s finance markets…

T vladiSlav Zabrodin Managing Partner CaPital legal ServiCeS

anna lekSaShova aSSoCiate CaPital legal ServiCeS

70 may 2013

HE GLOBAL market for Islamic finance at the end of last year was worth around $1.3 trillion, according to the UK Islamic Finance Secretariat, part of the CityUK lobby group. The total value of shariahcompliant assets has grown by 150% since 2006. Globally, banks hold over 90% of Islamic assets, and together with funds are big investors in sukuk, a type of bond.

Prospects for Islamic financing in Russia Russia is among the top 10 economies in the world, and its position continues to strengthen.

Russia’s gold and foreign currency reserves remain the third largest in the world after Japan and China, which serves as additional protection of the economy from financial turmoil.

Russia dominates in the volume and diversity of natural resources and by volume is the third ranking trading partner of the European Union

and is its key energy supplier. The consumer market in Russia is the largest and most rapidly growing one in Europe.

Sustainable economic growth, high investment profitability and the public’s consumption index make Russia an extremely attractive site for foreign investment. Russian politics remain on a stable course, government authorities are actively implementing a policy aimed at improving the investment climate by decreasing administrative barriers for business, creating a favourable tax climate, and introducing new investment mechanisms (special economic zones, public-private partnerships).

Despite the fact that the oil and gas industry and the mineral production industry have for a long time remained the most attractive investment sector, the actively developing non-resource sectors, including consumer sector projects, retail networks, transport and communications,

IslamIc FInance

transactions with real estate and financial activities are of main interest for private investments in Russia. In other words, the Russian economy is diversifying its industrial structure, relying less and less on the resource sector, while developing its real and financial sector.

Economic and cultural factors The Russian economy is open for reconsideration of available financial institutes and development of new financial mechanisms.

Russia, in particular, has all the necessary traits and great potential for developing Islamic financial institutions and products that have lately become such widespread practice in the world. The interest in Islamic financing in Russia is determined by both economic and cultural factors.

Loan rates offered by local traditional banks are rather high and institutions usually do not take active involvement in project implementation, which may lead participants of the financial market to consider alternative ‘cheaper’ and more commercially active financiers. Besides the economic component, the interest in Islamic financial products is also determined by cultural aspects of the Russian society.

Muslims comprise approximately 15% of Russia’s population. In certain regions, for example, in the regions of Tatarstan and Bashkortostan, Muslims comprise as much as half of the population. Therefore, creation of settlement and financial institutions in compliance with Shariah will be well received by the Islamic segment of Russia’s population.

Notwithstanding the above factors, Islamic financial institutes have yet to achieve proper expansion in Russia. It is fair to say that there are several reasons for this. It appears that the main difficulty lies in the low level of the public and business community awareness of Islamic financial products and, subsequently, particular concerns with respect to implications and success of implementing them on the Russian market. At the same time, taking into account the interest in developing Islamic financial products in Russia, the existing difficulties, in our opinion, are easy to eliminate. Objectively speaking, there are no economic, political or legal hindrances to the development of Islamic financing.

High level of economic freedom On the contrary, the Russian

legislation

Russia’s gold and foreign currency reserves remain the third largest in the world after Japan and China, which serves as additional protection of the economy from financial turmoil. encourages investment activity and provides its participants with a high level of economic freedom. Despite the fact that the sphere of Islamic finances is practically not addressed by Russian laws, Islamic financial products may be implemented on the Russian market owing largely to the discretionary nature of the Russian corporate, financial and contract law.

The main forms of investing cash in compliance with the requirements of the Russian legislation and Shariah may include the institutes of shareholder (participation in company capital), project (partnership) and debt financing through contractual structures.

Considering the prospects of developing the institute of shareholder financing, one should note the possibility of entering into shareholder agreements, restraining legal capacity of the company and its executive authorities and, as a consequence, the possibility of using a specialpurpose vehicle (SPV) in commercial activities in the optimum manner, as stipulated by the Russian corporate legislation.

Attracting project financing to the Russian market, including in the form of ‘musharakah’ and ‘mudarabah’ traditional transactions, and debt financing in the form of ‘murabahah,’ ‘ijarah,’ ‘istisna,’ ‘salam’ and other transactions, should encounter no hindrances either. The fundamental principle of Russian civil law is the freedom of contract principle, which provides for the right of the parties to determine at their discretion the terms and conditions of an agreement and enter into an agreement that is either covered by law or not covered by law, or contains elements of several types of agreements (a mixed agreement).

Fiscal nature of the tax policy In addition to choosing transaction structure, the Russian legislation allows parties to independently determine the applicable law and to agree on the jurisdiction for settling disputes arising from the agreement. However, the

150%

Growth of Global value of shariacompliant assets, since 2006 71

IslamIc FInance

Russia has all the necessary traits and great potential for developing Islamic financial institutions and products that have lately become such widespread practice in the world. parties should take into account the imperative regulations of the Russian substantive and procedural law, including those regarding the exclusive jurisdiction of Russian courts as concerns disputes with respect to title to real estate located in the Russian Federation.

Furthermore, the parties must make sure that the decision of the respective court can be implemented (that is, that there is a procedure for accepting and implementing such decision), otherwise the practical value of a court decision made in a foreign jurisdiction is reduced to null.

It must also be noted that despite the fiscal nature of the tax policy, the level of tax rates in Russia is significantly lower than in many other countries.

In particular, at present, the general profit tax rate (corporate tax) in Russia comprises 20%, value added tax is 18%, individual income tax is 13%; and a system of tax benefits and deductions with respect to VAT is in effect. Moreover, Russia has double taxation treaties with 77 countries, which allows choosing the country with the most acceptable tax regime to close the transaction.

Therefore, the majority of standard Islamic financing transactions, including those mentioned above and their hybrid schemes may be used in the Russian Federation with no adverse legal consequences. This is confirmed by successful investment by OJSC AK BARS Bank of syndicated financing funds attracted in the amount of $60 million within an Islamic murabahah transaction.

This transaction was recognised ‘Europe Deal of 2011’ according to Islamic Finance News.

No prohibitions on foreign entities Russia is also a prospective site for Islamic securities – the ‘sukuk,’ which could be used as a business tool for attracting major investors to infrastructure projects. Russia’s advantages in this field include a large amount of assets for an asset-backed sukuk, as well as the interest of investment banks in issuing it on a government level.

72 may 2013

Taking into account that in Russia the securities are only recognised as securities if they are classified as such by the legislation of the Russian Federation, the question concerning the possibility to issue sukuk within the country remains open. Nevertheless, it is possible to issue sukuk backed by Russian assets through SPVs in offshore territories. Russian law practically does not contain any prohibitions on foreign legal entities owning assets (such as real estate). The existing prohibitions concern mainly agricultural land and land in Russia’s border zones.

The Government of the Republic of Tatarstan has signed a respective Memorandum of Understanding with Kuwait Finance House Bank (Malaysia) Berhad and Amanah Raya Berhad on issuing sovereign sukuk bonds for the Republic of Tatarstan. For purposes of this Memorandum, Tatarstan announced issuance of a sovereign sukuk (issued by the region) from $100 to $200 million through the offshore territory of Luxemburg and/or Malaysia.

The issuance of debut Islamic bonds (sukuk) on one of the Islamic financial markets – Asian or Middle East markets – was also announced by the VTB financial group. These transactions should demonstrate the possibility of placing a Russian issuer on the Islamic securities market and stimulate other participants of the Russian market.

Application of Islamic financing tools Implementation of Islamic finances on the Russian market is possible through banking and nonbanking financial institutions, including banks, non-bank credit organisations, SPVs, investment companies, mutual investment funds, leasing and insurance companies.

However, speaking of the prospects of developing Islamic banking in Russia, one cannot ignore the following issues.

a) First, the Russian banking system is based on the bank obtaining its revenue in the form of interest on the transaction amount, while the fundamental principle of Islamic banking is prohibition of interest (‘riba’).

b) Second, the Russian legislation establishes a direct prohibition on participation of a credit organisation in manufacturing, trading and insurance activities, which eliminates the possibility for them to carry out such transactions

IslamIc FInance

as murabahah, istisna’a and salam that are traditional for Islamic banking.

At the same time, these circumstances do not represent insurmountable barriers, since the banking legislation contains no restrictions with respect to bank participation in the charter capital of other companies engaged in manufacturing, trading and insurance activities.

Therefore, an Islamic bank may operate in Russia without any credits or deposits, but with project financing and investment accounts as an investment and settlement bank, and apply Islamic financing tools by investing in projects through SPVs.

The prospects of developing Islamic financing in Russia are not strictly theoretical, as they are confirmed by successful examples of creating and operating Islamic financial institutes TARGET CUSTOMERS: Muslims comprise approximately 15% of Russia’s population.

Therefore, creation of settlement and financial institutions in compliance with Sharia will be well received well by the Islamic segment of Russia’s population.

Russia is also a prospective site for Islamic securities – the ‘sukuk,’ which could be used as a business tool for attracting major investors to infrastructure projects. and products. The Tatarstan International Investment Company (a joint venture of Russia and Islamic Development Bank), Open Mutual Investment Fund BKS – Halal Fund (Kazan) and AMAL Financial House (Kazan) have already been created in the course of implementing the Islamic financial infrastructure in Russia.

15%

proportion of muslim population in russia

A promising outlook Within the ‘Islamic window’ OJSC Bank Express (Dagestan) offers halal financial products, OJSC ISK Euro-Policy has started to offer Islamic insurance products (‘takaful’) since 2012, and so on. The interest of the government, business community and Russian people in Islamic finances has been on the increase year after year.

For the last couple of years the government and major participants of the Russian financial market have been paying great attention to developing Islamic finances in Russia and establishing close trade and economic relations with the Middle East and Asia.

Since 2005 Russia has been an observer of the Organisation of Islamic Cooperation, which facilitated significant improvements on the political, economic and cultural arenas and closer relations with Islamic countries. Round tables, forums, annual conferences, summits (for example, International Islamic Conference, Kazansummit) and seminars are dedicated to the issue of developing Islamic financing. Such activities indirectly confirm Russia’s interest in alternative financial tools, and Islamic financing which focuses on real economic activity instead of speculative activity, has a promising outlook on the Russian market.

Thanks to the abundance of a resource base, the amount of Muslim population and geographical proximity to the countries of Central Asia and Middle East, Russia has the potential to become one of the major Islamic financing markets in Europe. We expect these prospects to become reality in the foreseeable future.

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

Ahmad El Kattan joins Grant Thornton UAE as an Audit Manager. He has considerable professional services experience gained at Deloitte in the UAE, Ernst & Young in Ireland and PricewaterhouseCoopers in Egypt.

Ahmad has considerable sector experience which he has achieved in an international capacity with work spells around the world. He has qualified with a Bachelors of Commerce with a major in Accounting from Aim Shams University in Egypt and further enhanced his academic qualification by completing his certified public accountant examinations from the Colorado Board of Accountancy in the United States of America.

Standard Chartered has announced the appointment of Dan Azzi as Chief Executive Officer for its operations in Lebanon. Prior to taking up this position, Dan was Regional Head of Global Markets and Co-Head of Wholesale Banking for the Middle East, North Africa and Pakistan (MENAP) based in Dubai. Dan joined Standard Chartered in 2008 as Head of Trading and in 2009 he was appointed as Regional Head, Global Markets and Co-Head Wholesale Banking, for MENAP. He brings to his new role a wealth of experience with leading global financial institutions, including Bear Stearns Asia Ltd, 74 May 2013

where he was Senior Managing Director/Head of Synthetic Equity & Securities Finance for Asia & Japan.

Before that, he spent 7 years with Deutsche Bank in New York and Hong Kong. Dan holds a Bachelor’s degree from the American University of Beirut, a Master’s degree from the University of Illinois (Urbana), and an MBA from Columbia University in New York. He has lived, worked in, and travelled to over 70 countries.

Ahmad Darwish has been appointed as a board member of Accounting Executive Advisory Board (AEAB) in the UAE Universit y which is the first and oldest of the governmentsponsored institutions of higher learning in the United Arab Emirates. AEAB, which has just held its first meeting, is mandated to provide guidance to the accounting department (the first accounting department in GCC to be A ACSB-accounting accredited) for its undergraduate and graduate programmes, provide input on other issues important to the department in retaining its A ACSB accreditation and assist in review of courses to make sure they are relevant and appropriate in terms of content and skill development and provide opportunities for facult y to develop relevant practical experience. Ahmad is the Manager – Management Accounting in the finance department at DP World, and is also ACCA (the Association of Chartered Certified Accountants) UAE Advisory Committee Chairman.

QInvest, Qatar’s leading investment bank, has announced the appointment of Michael Katounas as Head of Investment Banking to lead the firm’s Investment Banking strategic direction in Qatar, the region and beyond. Katounas has 15 years of regional and international experience having worked in London, Dubai, Amsterdam, and in his home country, Greece. Prior to joining QInvest, Katounas spent over eight years in the investment banking team at Credit Suisse and led some of the largest transactions in the MENA region and Europe. He holds a Master of Science from the London School of Economics and is a Chartered Financial Analyst (CFA).

Gulf Bank has announced the appointment of Vikram Issar as General Manager of Consumer Banking, who joined the Bank in March 2013. Issar was previously with Standard Chartered Bank in Singapore where he was Chief Operating Officer for Products and Segments and Consumer Finance.

Prior to that, he was the Head of the Consumer Bank in Thailand, and before that in Bangladesh.

Issar brings with him 22 years of managerial experience in banking, with a broad range of experience in a number of different Asian markets, including Singapore, Thailand, Bangladesh and India.

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