ContentsNew Financial Reporting Study Manual 7 December 2006 Examination Timetable 7 Important Notes for Candidates 7 Accounting Technician Examination Snapshot of the June 2005 Graduates

HKIAAT News

President’s Message 1Relocation to Wu Chung House 2Updates on the Progress of the New Examination Structure 2World Congress of Accountants and CAPA meeting 2New President of UKAAT 2Participation in Expositions and Careers Seminars 3Metro Programmes Featuring HKIAAT 3Site Visits for Accounting Students 3Discount Offers for Members and Students 5Updated Auditing Study Text 5Q&A Booklets 5New Books in the Library 5

Professional Bridging Examination

Examination Technique Seminars 6New Financial Reporting Study Manual 7December 2006 Examination Timetable 7Important Notes for Candidates 7

Accounting Technician Examination

Snapshot of the June 2005 Graduates 9December 2006 Examination Timetable 10Important Notes for Candidates 10

Members’ Corner

Stress and Examination 12Continuing Professional Development Programmes 14

Studies in Foundation Accounting

Book-keeping and Accounts Examination and 15 Computerised Accounts ExaminationCertified Accounts Clerk Qualification 15專訪「全港中學及大專院校會計個案比賽」得獎學校 — 大專組 17

Activity Highlights

Visit to Coca-Cola Bottling Plant 18Study Buddy Groups 19Technical Seminar: Stress Management for Accounting Technicians 20Social Visit to Tuen Mun District Integrated Services for the Elderly 21Examination Technique Seminars 22Gift Time! 22

Greenfield

The Puzzle 24Q&A 25

Features

Deductions of Outgoings and Expenses under Salaries Tax (Part II) - 26 By Ruby K C CheungHong Kong Financial Reporting Standards: HKAS 33 “Earnings Per Share” - 28 By Patrick P H Ng and Chris K C Lau

Honorary AdvisersPresident and Vice-Presidents of the Hong Kong Institute of Certified Public Accountants

Board MembersDoug Oxley(President)Kennedy Tat-yin Liu(Vice-President)James T W Kong(Vice-President)Chan Cheuk HayIvan K F ChanChew Fook AunStella P L ChoDennis C O ChungWilson Y W FungJohnson C H KongPeter S T LeeAndy T M LiDennis H S MakWan Shiu KeeLindy W W Yau

Editorial CommitteeLindy W W Yau(Chief Editor)Patrick P H Ng(Deputy Chief Editor)C H Cheng(Deputy Chief Editor)Charles K C Chiu(Monitor of the Issue)Selwyn S Y ChengThomas C F ChungChris K C LauLisa S K WongMichael C W Wong

Staff ResponsibleGrace W Y Leung(Secretary General)Kitty K W Siu(Administrative Officer)

Jul/Aug 2006Hong Kong Institute of Accredited Accounting Technicians Limited香港財務會計協會有限公司

17/F, Fortis Bank Tower77-79 Gloucester RoadWanchai, Hong KongTel: 2823 0600Fax: 2823 0606Hotline: 2823 0660Web: www.hkiaat.orgE-mail: [email protected]

(Circulation: 8,300 copies)

Contents

Dear members and students

Following the great success of our rebranding exercise early this year, we are now preparing ourselves for another exciting and important move – this time a physical one. We will be moving office premises to Wu Chung House on 18 September 2006, enabling us to be in closer contact with our parent institute, the Hong Kong Institute of Certified Public Accountants.

Soon you will be able to enjoy some great facilities on offer there such as a lecture theatre for seminars and a well-equipped library for research and study. With better resources and the closer support from our parent institute, we will continue our pledge to provide our members and students with top-quality services.

Those of you who attempted the Accounting Technician Examination (ATE) in June should have received your results by now. I wish to congratulate all of you for having devoted many hours of hard work and efforts to your preparations for the examination. Don’t worry too much about the results as long as you have given the exams your best try. You will always learn by experience!

It is never easy to manage work and study. Very often candidates find themselves trapped by the invisible evil – stress. We have another article on stress management in this issue of the Journal. There will also be a special technical seminar on stress management in September. I am sure through these articles and events you’ll be able to learn how to strike a balance in life.

For those who have successfully completed all papers of the ATE, remember that you are now privileged to join us as members. This is a golden opportunity for you to capitalise on your success. By becoming an Associate or Fellow member of HKIAAT, you will have the right to use the designations AAT or FAAT after your name. This is an important recognition of your achievement in becoming an Accredited Accounting Technician, which is the ticket to a promising accounting career.

If you have just registered with us, we are here to help you in your pursuit of the AAT qualification. Examination technique seminars are here for you to learn the best techniques in answering exam questions. We also help students to form Study Buddy Groups so that they can support and motivate each other during study. Remember that with the HKIAAT you are never alone!

President’s Message

Doug OxleyPresident

HKIAAT News

2The relocation will also bring us close to our parent institute, the Hong Kong Institute of CPAs, further strengthening our bond as one big family dedicated to the accounting profession. With better resources and facilities, we will continue our pledge to provide premier services for our members and students.

The full address of our new office is 27/F, Wu Chung House, 213 Queen’s Road East, Wanchai. All other contact information including telephone, facsimile, email and website will remain the same.

We are moving! We will be relocated to our new office on the 27th Floor of Wu Chung House as from 18 September 2006.

The new space which occupies the whole floor is about 25,000 square feet. Apart from offices for the Secretariat, it accommodates many great facilities such as a lecture theatre for seminars and a well-equipped library for research and study.A well-equipped library for research and

study.

Relocation to Wu Chung House

As a professional body of vision which places our students’ best interests at heart, we are constantly monitoring our examination structure to ensure that our graduates will be trained to meet the expectations and demands of today’s employers.

We recently appointed Advanced Business Education Limited, a wholly-owned subsidiary of the New Zealand Institute of Chartered Accountants, to conduct an in-depth review of our current examination structure in order to develop a new syllabus to reflect the core competencies of accounting technicians, enabling them to meet Hong Kong’s market needs. To have a better understanding of the concerns of various stakeholders, the consultants flew to Hong Kong in June to meet our Board members, executives of the Hong Kong Institute of CPAs, employers, educationists,

The 17th World Congress of Accountants will be held in Istanbul, Turkey between 13 and 17 November 2006. The Congress will feature plenary sessions and workshops on a wide range of accounting, auditing, ethics and financial management issues.

World Congress of Accountants is organised every four years by the International Federation of Accountants, and each congress is held in a different country. It is estimated that 5,000 delegates from all around the world will attend the WCOA 2006 Congress. Our parent institute, the Hong Kong Institute of CPAs, hosted the

Mr Brian Palmer was elected the new President of the Association of Accounting Technicians in the United Kingdom (UKAAT) at its Annual General Meeting held on Friday, 19 May 2006.

Mr Palmer runs his own accountancy practice, Palmer & Co, in Bournemouth. Over the years, Mr Palmer has been an active member of the UKAAT's Bournemouth and Poole Branch and has sat on UKAAT Council since 2000. He also acts as the UKAAT's representative on Working Together, a pan professional committee that works with HM Revenue and

government officials, students and graduates to collect their views on the accounting technician profession.

We are now in the process of reviewing the consultants’ proposal for the new structure. A public consultation on the new syllabus will be conducted in the last quarter of 2006. All of our stakeholders will be invited to give their comments. To build up a strong accounting technician profession, we need your support in this important move and we value your comments and suggestions on the proposed structure. Watch out for updates!

Updates on the Progress of the New Examination Structure

World Congress of Accountants and CAPA meeting

event when the congress was held in Hong Kong four years ago. Mr Doug Oxley, President of HKIAAT, will be participating in this international event to meet accounting professionals coming from all over the world. Prior to the event, he will also be attending the 68th CAPA Excom (11th Board meeting) organised by the Confederation of Asian and Pacific Accountants (CAPA) which will be held in Istanbul between 11 and 12 November 2006. Mr Oxley was the President of CAPA between 1993 and 1995. CAPA has a membership of 31 accountancy organisations in 22 jurisdictions. The HKIAAT has been an Associate Member of CAPA since May 2000. CAPA holds regular conference / meetings on a regular basis and HKIAAT sends its representatives to attend these each year.

New President of UKAATCustoms. We wish to congratulate Mr Palmer on his new appointment!

The HKIAAT signed a Reciprocal Membership Agreement (RMA) with the UKAAT in February this year. Under the RMA, members of both bodies are recognised by the other and members are eligible to apply for membership of the other body and enjoy the same benefits and services.

華比富通大廈Fortis Bank Tower

修頓中心Southorn Centre

軒尼詩道 Hennessy Road

莊士敦道 Johnston Road

行

人

天

橋

春園街Spring

GardenLane皇

RoadQueen's East

A3

合和中心HopewellCentre

胡忠大廈Wu Chung House

謝斐道 Jaffe Road

駱克道 Lockhart Road

太原街

TaiYuenStreet

后

道大

東

Our New Office on 27/F (As from 18 September 2006)

Location map.

HKIAAT News

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Participation in Expositions and Careers Seminars

An important part of our role at the HKIAAT is to make sure potential students know more about us – who accounting technicians are, what we do, and the benefits of being part of the accounting technician fraternity. During June and July, we took part in various education and career expositions to let interested parties, particularly HKCEE and HKALE candidates know more about the AAT qualification.

During the expos, the Secretariat staff, members of the Communication Committee and Member and Student Services Committee took turns to man the booths and answer enquiries. Visitors were keen to know about an accounting career in general and our examination structure in particular.

We also had the opportunity to introduce the AAT qualification to the public on 8 July. Our Board Members,

Messrs Johnson Kong and Andy Li were invited to speak at two separate career seminars during which they gave an overview of the accounting profession and explained in detail how to attain an Accredited Accounting Technician qualification via the examinations offered by the HKIAAT.

We would like to take this opportunity to thank Messrs Kong and Li and members of the Committees for the time and effort that they offered during the exhibitions.

Mr Andy Li introducing the AAT qualification. Mr Johnson Kong sharing his experience in the accounting field.

The last of the 13-serial programme “增值青雲路” on HKIAAT was finally broadcast on 27 July. In this last programme of the series, Vice-President Mr James Kong summarised information on the accounting technician profession and the AAT qualification. The 13 programmes, which were broadcast on Metro Radio in April, June and July, involved speakers including our Board members, experienced CPAs, educationists, employers, members and students and covered the following:

1. The accounting profession, the HKIAAT’s rebranding and our history2. The role, job nature and career prospects of an Accredited Accounting Technician

(AAT)3. How can you become an AAT?4. Who can become an AAT?5. The AAT qualification

6. AAT membership7. Member and student services8. China market9. Employer’s thoughts10. Member’s thoughts11. Graduate’s thoughts12. Future developments13. Summary

If you missed the chance to listen to the live broadcast, visit our website www.hkiaat.org to hear the recorded version.

We would like to take this opportunity to thank all the speakers for their kind support to make the programmes a success.

Metro Programmes Featuring HKIAAT

Mr James Kong pictured with the Metro Radio host, Ms Lai Hoi Shan, after the last programme was recorded.

To help the senior secondary students taking our COC course “Practical Accounting for Small and Medium Enterprises”, see how their course work can be applied in the workplace, we have arranged site visits for them which took place in July 2006.

First, students were received at the HKIAAT by the Secretariat staff who explained the route to become an Accredited Accounting Technician (AAT) after their graduation. Students then moved on to Li, Tang & Chen CPA where they were welcomed by partner Mr William Chan, past president of HKIAAT, who shared his experience in the accounting field and gave students a tour around his firm.

On a separate occasion, a visit to CWCC CPA was arranged for students from Hong Kong College of Technology. A group of 15 students and teachers were greeted by partner Mr Dennis Chung, past president of

Mr William Chan sharing his experience with students.

Mr Steven Chan from Hong Kong College of Technology presenting a souvenir to Mr Dennis Chung (left).

Site Visits for Accounting Students

HKIAAT on 20 July. They were given a chance to understand how a CPA firm works and the functions of each department. Students were also eager to know the career prospects of working in a CPA firm, which Mr Chung talked to them about.

We would like to take this opportunity to thank Messrs Chan and Chung for devoting their time in arranging the visits.

HKIAAT News

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HKIAAT News

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Updated Auditing Study Text

The Auditing (2006 edition) study text is now ready for sale. The listed price is HK$210. Features of the book include:

• Practical and up-to-date • References and explanatory notes are made to the Auditing Standards issued by the Hong

Kong Institute of CPAs to illustrate the theory and practice of auditing in Hong Kong• Supplemented by review questions and multiple-choice questions with suggested solutions to

enhance students’ understanding

HKIAAT registered members / students who purchase the study texts from the Secretariat will continue to enjoy a 20% discount. Proof of member / student identity is required.

New Books in the LibraryWe are pleased to announce that the following books have been added to the library:

Books Author(s) Publisher Year Quantity R/L*

Advanced Taxation in Hong Kong(Tenth Edition)

Dora Lee & C M Ho Longman 2006 One L

Auditing Teresa Ho and Lisa Wong HKIAAT 2006 Two L

Auditing and Assurance in Hong Kong Peter Lau and Nelson Lam Pilot Publishing Co Ltd 2006 One L

Cost and Management Accounting Colin Drury Thomson Learning 2006 One L

Financial Reporting (Vol 1 & 2) Teresa Ho and Lisa Wong HKIAAT 2006Two for

each volumeL

* R = reference, L = lending

Q&A Booklets

Question and Answer Booklets (Q&A) for the June and July 2006 examinations will be available for sale after mid-September. Each copy costs HK$10.

Should you wish to place a mail order for these booklets, please complete the mail order form and return it to us together with a stamped self-addressed envelope (size: 10”x14” or larger) and a cheque for payment for the Q&A booklet charges. The form can be obtained from the HKIAAT either by fax through the hotline at 2823-0660 or via the web-site www.hkiaat.org.

We would like to thank Longman,Pilot Publishing and Thomson Learning for donating the books to the library.

Discount Offers for Members and Students

We are pleased to announce that Bloomsbury Books Ltd is offering a 15% discount on business books (other than special price items) and a 20% discount on Kaplan Professional Bridging Examination study manuals to our members and students. The offer will begin on 1 September 2006. You will also enjoy the members’ rate of the Hong Kong Institute of CPAs when you purchase Chinese publications at the Institute. For details, please visit http://www.hkicpa.org.hk/publications/pub_forsale/pubforsale_CICPA.pdf

Remember to bring your membership card or student registration card to enjoy this special offer.


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Examination Technique Seminars

In order to assist students to prepare for the coming Professional Bridging Examination, the HKIAAT is organising Examination Technique Seminars which will be held in November 2006. The seminars will place special emphasis on question-answering techniques and on addressing the common problems that most students encounter during examinations, based on past papers. Experienced lecturers will be conducting the seminars on a paper-by-paper basis. A free Q&A booklet from the latest examination session will be distributed to each seminar participant.

Name of Paper Date Time

Paper I – Financial Reporting 6 November 2006 (Monday) 7:15 pm – 8:45 pm

Paper II – Management Accounting 7 November 2006 (Tuesday) 7:15 pm – 8:45 pm

Paper III – Financial Management 8 November 2006 (Wednesday) 7:15 pm – 8:45 pm

Paper IV – Legal Environment 9 November 2006 (Thursday ) 7:15 pm – 8:45 pm

Venue: Seminar Room, Hong Kong Institute of Accredited Accounting Technicians Limited New Office (27th Floor, Wu Chung House, 213 Queen’s Road East, Wanchai, Hong Kong)Max. no. of attendees: 40Admission fee: HK$60 per head for HKIAAT members / students and HK$90 per head for non-HKIAAT members / studentsClosing date: 23 October 2006 (Monday)Application: Complete the enrolment form and return it, together with the admission fees, to the HKIAAT before the closing

date. Enrolments will be processed on a first-come-first-served basis with priority given to registered members / students. Fees paid will not be refunded unless the event is cancelled.

Remarks: The HKIAAT reserves the right to change the date, venue and time of the seminars if necessary.

Enrolment Form Examination Technique Seminars for the Professional Bridging Examination(Deadline: Monday, 23 October 2006 )

(To keep your Journal in good shape, please make a photocopy of this form for use.)

I. Name: *Mr/Mrs/Ms/Miss (English) (Chinese)

Membership No./Student Registration No.: Telephone No.(Day-time):

Address:

E-Mail:

II. Please put a ‘ ’ in the box(es) to indicate your choice of seminar(s).

q Seminar on Paper I q Seminar on Paper III

q Seminar on Paper II q Seminar on Paper IV

(Please read the details of the seminar(s) carefully before you complete this form.)

Signature of applicant Date

* Delete as appropriate

I would like to enrol in the following seminar(s) and hereby enclose a cheque for the total amount of HK$ payable to

“Hong Kong Institute of Accredited Accounting Technicians Limited” as payment for the seminar(s).


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December 2006 Examination Timetable

Paper Date Time

Paper I – Financial Reporting 7 December 2006 (Thursday) 2:00 pm – 5:00 pm

Paper II – Management Accounting 9 December 2006 (Saturday) 2:00 pm – 5:00 pm

Paper III – Financial Management 14 December 2006 (Thursday) 2:00 pm – 5:00 pm

Paper IV – Legal Environment 16 December 2006 (Saturday) 2:00 pm – 5:00 pm

Important Notes for Candidates (From Announcement of June 2006 Examination Results to December 2006 Examination Entry)

Date HKIAAT Action Candidate Action Remarks

The third week of August 2006

For students who have entered the June 2006 examination:

A combined Examination Results Report together with Status Report AND Examination Entry Form will be despatched.

For students who have successfully completed the Professional Bridging Examination in the June 2006 sitting:

The Examination Certificate will be ready for collection 3 months after the results are released.

Upon receipt of the Examination Results Report and Examination Entry Form, students must check that all details contained in the document are correct. If any of the data is incorrect, students should contact the HKIAAT IMMEDIATELY.

SCRIPT REPORT SERVICEIf a student wishes to have a written report on his/her performance, he/she should make a written application within two weeks from the date of announcement of the results and send this together with the payment of a non-refundable fee of HK$680 per paper to the HKIAAT.

Verbal, late or incomplete applications will not be accepted.

The HKIAAT will NOT deal with enquiries about the examination results.

Students should note that the script report service is NOT a re-marking exercise. It is purely an exercise to let the student know his/her performance in the examination.

In view of the recent changes to the Hong Kong Financial Reporting Standards (HKFRS), we have published another study manual for students taking Paper I – Financial Reporting in the Professional Bridging Examination. Features of the study manual include:

• Ample references and explanatory notes to the accounting standards issued by the Hong Kong Institute of CPAs to illustrate accounting theory and practice in Hong Kong

• Supplemented by an excellent range of review questions with suggested solutions to enhance students’ understanding of the subject

The manual comes in two volumes. The listed price is HK$380 for one volume and HK$700 for both. HKIAAT registered members / students who purchase the study manuals from the Secretariat will continue to enjoy a 20% discount (note that proof of member/student identity is required).

New Financial Reporting Study Manual


8Date HKIAAT Action Candidate Action Remarks


For students who have not entered the June 2006 examination but are on the HKIAAT Register before 15 July 2006:

An Examination Entry Form will be despatched to students.

Upon receipt of the Examination Entry Form, students must check that all details contained in the document are correct. If any of the data is incorrect, students should contact the HKIAAT IMMEDIATELY.

31 August 2006

Students who have not received the Examination Report and/or Examination Entry Form or have misplaced them should contact the HKIAAT IMMEDIATELY for a duplicate copy.

No duplicates will be issued to students after 30 September 2006 (the deadline for Examination Application).

The first week of September to 30 September 2006

Students who decide to sit the December 2006 examination should read the Instructions to Candidates carefully before completing the Examination Entry Form.

Examination entries cannot be withdrawn or transferred. Fees paid are non-refundable.

Students should make sure that their completed examination entry forms together with cheques covering the appropriate fees should reach the HKIAAT before the closing date of 30 September 2006.

Students should make sure that their cheques are not post-dated and funds are available in their accounts to avoid cheques being returned.

Students are reminded that if their cheques are returned, a surcharge of HK$110 will be levied. Furthermore, the application may also be returned without processing.

30 September 2006

Closing date for applications for the coming December 2006 examination.

The fourth week of October 2006

The last batch of Examination Entry Acknowledgements will be despatched by the HKIAAT to all students whose applications have been accepted for the December 2006 examination.

Upon receipt of the Examination Entry Acknowledgement, students must check that all details contained in the document are correct.

If any of the data is incorrect, students should contact the HKIAAT IMMEDIATELY.

Rejection letters together with cheque(s) and cancelled entry forms will be despatched by HKIAAT to all students:-

1) whose applications are incomplete; or

2) whose applications reached the HKIAAT after the closing date.

The first week of November 2006

Students who receive no Examination Entry Acknowledgement, rejection letter or cancelled entry forms should contact the HKIAAT IMMEDIATELY to enquire about the status of their examination entry.

Important Notes for Candidates (Cont’d)


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Snapshot of the June 200� Graduates

Statistical analysis of June 2005 graduates was conducted by the HKIAAT based on a questionnaire to which 43% of the 335 graduates responded. The results show that 29% of the graduates completed the Accounting Technician Examination within 2 years of registering as students, while 32% of them took more than 5 years. 47% of the graduates are under 28 years old. For their career paths, more than half of the graduates work in the commercial sector while 16% of them work in CPA firms. When it comes to monthly salaries, 62% of the graduates earn between $10,000 and $19,999 and 2% of them earn $20,000 or more.

Age

Employment Salary

Time to complete the Accounting Technician Examination


10

December 2006 Examination Timetable

DateTime

Friday, 1 December 2006

Saturday, 2 December 2006

Friday, 8 December 2006

Saturday, � December 2006

9:30 am – 12:30 pm

Paper 1 - Financial Accounting

Paper 5 - Hong Kong Taxation

Paper 2 - Business Communication

Paper 3 - Cost Accounting

2:00 pm –5:00/5:30 pm*

Paper 7 - Advanced Accounting

Paper 4 - Information Technology Applications in Accounting*

Paper 8 - Auditing

Paper 6 - Hong Kong Business Law

*DacEasy Accounting for Windows v. 11 and Microsoft Excel 97 (or higher version) for both Chinese and English Windows will be used in the Paper 4

examination. Please note that this paper lasts for 3.5 hours (from 2:00 pm to 5:30 pm).

Important Notes for Candidates (From Announcement of June 2006 Examination Results to December 2006 Examination Entry)

Date HKIAAT Action Candidate Action Remarks


For students who have entered the June 2006 examination:

A combined Examination Results Report together with Status Report AND Examination Entry Form will be despatched.

Upon receipt of the Examination Results Report and Examination Entry Form, students must check that all details contained in the document are correct. If any of the data is incorrect, students should contact the HKIAAT IMMEDIATELY.

SCRIPT REVIEWIf a student wishes to have his/her script reviewed, he/she should make a written application within two weeks from the date of announcement of the results and send this together with the payment of a non-refundable fee of HK$330 per paper to the HKIAAT.

Verbal, late or incomplete applications will not be accepted.

The HKIAAT will NOT deal with enquiries about the examination results.

Students who make a review application are reminded that the review result is final and conclusive.

For students who have not entered the June 2006 examination but are on the HKIAAT Register before 15 July 2006:

An Examination Entry Form will be despatched to students.

Upon receipt of the Examination Entry Form, students must check that all details contained in the document are correct. If any of the data is incorrect, students should contact the HKIAAT IMMEDIATELY.

31 August 2006

Students who have not received the Examination Report and/or Examination Entry Form or have misplaced them should contact the HKIAAT IMMEDIATELY for a duplicate copy.

No duplicates will be issued to students after 30 September 2006 (the deadline for Examination Application).


11Date HKIAAT Action Candidate Action Remarks

The first week of September to 30 September 2006

Students who decide to sit the December 2006 examination should read the Instructions to Candidates carefully before completing the Examination Entry Form

Examination entries cannot be withdrawn or transferred. Fees paid are non-refundable.

Students should make sure that their completed examination entry forms together with cheques covering the appropriate fees should reach the HKIAAT before the closing date of 30 September 2006.

Students should make sure that their cheques are not post-dated and funds are available in their accounts to avoid cheques being returned.

Students are reminded that if their cheques are returned, a surcharge of HK$110 will be levied. Furthermore, the application may also be returned without processing.

30 September 2006

Closing date for applications in the coming December 2006 examination.

The fourth week of October 2006

The last batch of Examination Entry Acknowledgements will be despatched by HKIAAT to all students whose applications have been accepted for the December 2006 examination.

Upon receipt of the Examination Entry Acknowledgement, students must check that all details contained in the document are correct.

If any data are incorrect, students should contact the HKIAAT IMMEDIATELY.

Rejection letters together with cheque(s) and cancelled entry forms will be despatched by HKIAAT to all students:-

1) whose applications are incomplete; or

2) whose applications reached the HKIAAT after the closing date.

The first week of November 2006

Students who receive no Examination Entry Acknowledgement, rejection letter or cancelled entry forms should contact the HKIAAT IMMEDIATELY to enquire about the status of their examination entry.

Important Notes for Candidates (Cont’d)

Members’ Corner

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Taking examinations is one of the most recognised roads to success for professionals such as accountants. For those who are committed, it leads them to a new status, both professional and social. For accountants-to-be or professional accountants alike, examinations also evidence intellectual growth. It is therefore not surprising that numerous candidates go through the process of taking accounting examinations every year. For some, the process is just a bit too much to bear. To many, the accounting examination system represents an endless ordeal that brings stress and disappointment, almost on a cyclical basis.

It is therefore important for those who really want success in an accounting career to be able to see examinations positively and turn them into stepping stones that they can leap and jump towards a state of self-actualisation (Maslow A.H., 1954). Self-actualisation is the intrinsic growth of what is already in the organism, or more accurately, of what the organism is. (Psychological Review, 1949)

To start with, one of the major obstacles in making the perception of examination positive is an incorrect mindset. This topic will be dealt with in a subsequent article called “critical thinking”. At the moment, it would be helpful for us to first briefly go through the usual pattern of preparation for examination to see how stress arises, then analyse how one can get out of the vicious cycle effectively, followed by a bird’s eye view of what measures can be taken during the examination and afterwards to provide safety cushions for one’s success.

Psychologically, the usual pattern of examination composes of five phases:

1. Denial – This is the stage when almost all candidates tend to think that the examination is just too far away to cause any immediate worry. Besides, work is already draining most energy every day and one is tempted to think that giving oneself a break is just the right thing to do.

2. Awakening – Anxiety begins when suddenly out of the blue, one starts to realise that the examination date is drawing close. A peek around shows that other candidates are already moving ahead.

3. Stress – When the spark is lit, psychosomatic symptoms appear. Insomnia and loss of appetite begin to set in, emotions begin to swing and study packs have become just too intimidating to dig into.

4. Coping – Forcing oneself to stick with the study schedule helps a bit but it seems that memory is not supporting one’s wish and what comes in just goes out. New study methods are devised and there is no other alternative but to focus on just a few hot topics to work on before the examination is here. Stress begins to mount.

5. Reaching for excellence – Quite often, this is the shortest period among the five and before one is ready, the examination date arrives. Stress is at its peak. Excellence is a just a dream too far away.

Breakthrough using imagery

To break away from this pattern requires a strong desire to lead a ”new life”. One of the ways is to do it with imagery. To practise

Stress and ExaminationBy William Tong, MBA, CPA

Members’ Corner

1�

practitioners. For example, pressing brain buttons which are located at the two shallow depressions immediately below the two collar bones on the chest helps to prepare the brain for high performance. Touching the stress release points on the forehead at the middle point between the eye brows and the normal hair-line helps to release excessive stress. Drinking water also helps to calm down the anxious and stressful mind (Touch for Health Kit, International Kinesiology College, 2001). Deep breathing is naturally and frequently practised to achieve calmness even for the untrained.

Post-examination review

Examinations are regarded as some kinds of necessary evil by many candidates. The completion of an examination therefore gives the candidate an immediate reason not to think about the intimidating examination further but to fall back into the usual ”rat race” at work. Consequently, not many lessons are learned from an examination that is just finished.

To move out of this vicious cycle, take time to review. Ask how one can do otherwise to provide for a more positive experience in the whole process of preparation and sitting for the examination. Only then will there be post-examination growth, which will in turn become an asset towards another round of success. The objective of this review is to set a new strategy in a less stressful state of mind, aiming to alter the duration of each of the five phases mentioned above, and investing most of the time in the last phase of preparation as far as possible.

When a new strategy is all set and time all wisely allocated to the last two phases of preparation, it is time to get started again. This time, make for an early start to ensure the emergence of a new pattern in examination preparation, and hopefully a more successful one.

Now you are ready to take a quantum leap! You deserve it!

ReferenceMaslow, A.H. (1954). Motivation and PersonalityAmerican Health Assistance Foundation Retrieved on 30 July 2006 fromhttp://www.ahaf.org/alzdis/about/AnatomyBrain.htmTouch for Health Kit, International Kinesiology College, 2001

The AuthorWilliam Tong is a multi-disciplinary professional. Apart from being a

professional accountant, he is also an executive & life coach, a certified

clinical hypnotherapist from the USA, a mentor to many local university

students since 1998, a trainer in management soft skills to all who dare to

excel. He applies neurology researches in educational training. As a project

manager of a MNC, he provides expert advices for executive recruitment.

Recently, he has been featured in the TVB Tuesday Report on life coaching.

He can be reached at [email protected]

it, one just creates a visual representation of the kind of life that one wants. Crudely speaking, one just day dreams it. Guided imagery from a professional coach would be much more effective than doing it alone because there is just too little time to spare for trial and error. The objective of the imagery is to accelerate the first two phases in the warming up and leave enough time for the other phases, in particular, the last two phases, for the real preparatory work. The longer the last two phases are, the better your chances of getting flying colours in your examination.

Examination fright and dissociation

Handling examination fright requires learning state management practices beforehand. Obviously when an examination matters a great deal to the candidate, whether it is because of the urge to move forward quickly in the profession and in career or whether it is to get on “the last train” before the syllabus changes, anxiety builds up. The symptoms mentioned in the last article on “stress” will emerge. In serious situations, stress may leave the candidate to under-perform in the examination hall, thus wasting all the hard work and preparation.

A solution is to practise dissociation well in advance before the examination, ideally under guidance. Dissociation, in simple terms, is when one detaches oneself psychologically from the direct impact of a situation by imagining that one is just a by-stander to the situation. This practice relaxes the emotion centre of the brain, the amygdala (see diagram) and allows the prefrontal cortex, which is located at the forehead and is responsible for analytical thinking, to function properly again. The re-activation of the prefrontal cortex helps one to secure a feeling of control.

Quoted from “American Health Assistance Foundation”

As mock examinations help to test the retention of knowledge, “mock dissociation” exercises help to build up resilience and enhance coping abilities. Mental preparation is just as important as digesting knowledge, and is definitely more important than just gobbling raw knowledge in an ill-prepared process. Practising good mental processes in the examination hall gives candidates a clear mind with which to tackle difficult examination questions. Other practical methods, though not yet empirically evidenced, include methods widely used among applied kinesiology

Members’ Corner

1�

Continuing Professional Development Programmes

The Hong Kong Institute of CPAs is organising the following Continuing Professional Development Programmes in September 2006. Our members enjoy the same fee as the Institute’s members and students. Apart from regular seminars or conferences, there are also e-learning programmes, workshops on soft skills and courses of longer duration on Putonghua. If you are interested and would like to enroll in these programmes, please visit the Institute’s website on professional training at: http://www.hkicpa.org.hk/membership/cpd/activities/activities.php

Date and Time Topic Format Language Fees12 September 2006 (Tue) 6:30 pm – 8:00 pm Developing an Effective IPR Strategy for China Seminar English $200

13 September 2006 (Wed) 6:30 pm – 8:30 pm Communicative Competencies for Accountancy Professionals Seminar English $200

14 September 2006 (Thu) 6:30 pm – 9:30 pm HKAS 16, 17 and 40 and Interpretations 1, 2 and 4 (re-run) Seminar Cantonese $450

15 September 2006 (Fri) 6:30 pm – 8:30 pm The Basic Legal Principles and the New Law Governing Shareholders Disputes

Seminar Cantonese $200

18 September 2006 (Mon) 6:30 pm – 8:30 pm Managing Changes – How to Implement Organisation Changes? Seminar Cantonese $200

20 September 2006 (Wed) 6:30 pm – 8:00 pm Depositary Receipt Seminar English $200

23 September 2006 (Sat) 9:00 am – 12:00 noon HKAS 12 Income Taxes Workshop Cantonese $750

26 September 2006 (Tue) 6:30 pm – 8:00 pm How to Make IT System Works for You? Seminar Cantonese $200

27 September 2006 (Wed) 6:30 pm – 8:30 pm HKFRS 1 First-time Adoption of HKFRSs Seminar Cantonese $200

28 September 2006 (Thu) 6:30 pm – 8:00 pm A Regulated Person’s Rights After the SFC’s Publication of the Guidance Notes on Cooperation with the SFC in March 2006

Seminar English $200

The Institute has since 1999 organised a number of workshop series on the accounting, auditing and taxation system in the Mainland. At present, the Institute has engaged The Hong Kong Polytechnic University to deliver the workshops. The next full workshop will be held from end of October to early December with a duration of 39 hours. The class size is 40. Our members will enjoy the same rate as the Institute’s members and students. For full course outline and more details, please visit http://www.hkiaat.org/index.php/affairs/index/121/

DacEasy (HK) LimitedAd


1�

Book-keeping and Accounts Examination and Computerised Accounts Examination

Examination Results

The examination results report will be despatched by ordinary mail to all schools or candidates before the following dates:

June 2006 Book-keeping and Accounts Examination End of August 2006

July 2006 Computerised Accounts Examination Third week of September 2006

The Examination Certificate will be ready for collection 3 months after the examination results are out.

Have you passed both the Book-keeping and Accounts Examination and the Computerised Accounts Examination? If so, you can receive our Certified Accounts Clerk qualification. Please contact the Secretariat to apply for your certificate.

Qualification for Exemption

Under the current policy, candidates who have attained a credit pass or above in the Book-keeping and Accounts Examination will be exempted from Paper 1 – Financial Accounting of the Accounting Technician Examination. The closing date to apply for an exemption for the December 2006 examination is 30 September 2006.

Entry Deadlines for the Examinations

Examinations Application deadline Fee*

December 2006 Book-keeping and Accounts Examination 15 October 2006 HK$300

January 2007 Computerised Accounts Examination 30 October 2006 HK$430

* With effect from 1 September 2006

Date and Time of the Examinations

Examinations Examination date Time

December 2006 Book-keeping and Accounts Examination Saturday, 16 December 2006

2:00 – 5:00 pm

January 2007 Computerised Accounts Examination Saturday, 13 January 2007

2:30 – 5:00 pm

CHEUNG, Man Yu

CHEUNG, Wai Fong

CHO, Sze Nga

CHONG, Sin Ting

FAN, Sau Man Corinna

HUNG, See Lai

KWAN, Pui Sze

LAI, Chun Wai

LAU, Fung Mei

LAW, Ka Yee Angel

OR, Wai Yee

SHEK, Sha Sha

WONG, Ying Ki Sandy

Certified Accounts Clerk Qualification

We are pleased to announce that 13 candidates have successfully completed both the Book-keeping and Accounts Examination and Computerised Accounts Examination and have been awarded the Certified Accounts Clerk qualification.

HKMAAd


1�團隊默契．佔盡優勢城大得獎學生分享得獎體會

在2005年「全港中學及大專院校會計個案比賽」中，香港城市

大學摘下大專組冠軍寶座。三位參賽同學潘紫榮(Lawrence)、陳

詠恩(Angela)和蔡耀光(Martin)現已畢業，前者完成暑期課程後打

算從事會計工作，而其餘兩位則會升讀會計學士學位課程，三

位百忙中亦不忘抽空來到本會，分享他們的致勝之道。

比賽擴闊視野三位同學同是工商管理副商學士(會計學)的畢業生，在學期間已

志同道合，一起參加會計個案比賽。Lawrence表示希望透過比

賽擴闊視野，了解其他院校和同學的實力，亦可試試自己的實

力，去運用會計和商業知識。而Martin則表示參加比賽對升學有

幫助：「比賽時我是副學士學生，有意升讀學士學位課程，而

這類公開比賽的經驗對日後面試和升學亦有一定幫助。」

賽後仍不忘學習事實上，比賽本身對參賽者來說已是寶貴的經驗，更間接鼓勵

參賽者努力不懈，不斷學習。Lawrence說：「我們很高興能在

比賽中取得如此佳績，這對我們多個月來所付出的努力予以肯

定。雖然我們在比賽勝出了，但這經驗令我了解自己仍有不足

之處。商業社會的知識範疇多，除了會計外，我亦需要提升核

數、稅務和法律等知識，以迎合社會需求及提升競爭力。」坐

在旁邊的Martin亦有同感，他指他們預備比賽時主要集中了解

有關公司的資料，不過在比賽時才發覺內容還包括國際時事等

知識，令他明白自己

在時事和其他知識方

面仍有不足的地方，

所以比賽後他亦多了

留意這類的新聞。而

Angela則坦言：「在

比賽得勝，證明我們

的努力沒有白費，亦

為我們在會計科目和

行業發展打下強心

針。」

合作與分工－發揮團隊精神佳績得來不易，據說

比賽其間正值他們的

年終考試，為免影響

學習，他們早在比賽

前兩個月開始準備，

搜集了歷屆試題，

以先了解比賽的範

疇和提問模式，再把

專訪「全港中學及大專院校會計個案比賽」得獎學校 — 大專組

問題分類，以及分析取材公司的業績報告，了解公司的狀況，

然後在比賽前夕再重溫有關資料。完成題目分類後，大家沒有

太明確的分工，Lawrence解釋說：「因為我們深信大家都應投

入和理解各個範疇，確保大家對各範疇都有足夠的認識。」可

見隊員的團結精神成了成功的因素之一，而學長的支持亦是不

可或缺的。Martin謂：「學長亦有在上屆取得獎項，所以我們

特地詢問他們的意見和心得，這些資料有助我們預備比賽。」

到了比賽當日，由於時間緊迫，所以三位同學的分工較明顯。

Angela說：「我負責管理和稅務等問題，而會計的問題則交予

另外兩位同學處理。不過下筆前我們先集合三人意見，比賽完

結前我們更會互相檢查答案，令所有的答題方向一致。我們的

應變能力和團隊默契在比賽時起了關鍵作用。」

增添會計熱誠比賽完結了，不過比賽的影響力猶在。Lawrence指比賽以現實

公司為題，讓他們嘗試在現實的情況運用知識，加深了他們對

會計科的興趣，亦激勵他們往後不斷學習其他商科的知識，以

在將來更有效發揮會計功能。在旁的Martin亦補充說：「會計從

業員需要面對不同層面的顧客，現在我有機會分析本地大公司

業績和銷售的成功之處，對我將來在會計行業發展，甚至作投

資研究等都有很大幫助。」可見比賽不但鼓勵了三位同學繼續

向會計方向發展，亦令他們對會計工作更添熱誠。

教育統籌局常任秘書長羅范椒芬女士於協會週年晚宴上頒獎予三位參賽同學潘紫榮(Lawrence)、蔡耀光(Martin)、陳詠恩

(Angela)及負責老師鄭保華女士(右二)。

Activity Highlights

18

Visit to Coca-Cola Bottling Plant

On 24 June, a group of 41 HKIAAT members, students and staff joined a tour of the Coca-Cola Bottling Plant. We observed the bottling process and learned that the bottling plant was also the franchise bottler of more than 15 different drinks in Hong Kong including Nestea, Nescafe and Qoo drinks. We also witnessed the high speed can line filling 2,000 cans per minute!

Our guide was very knowledgeable and told us many fun and interesting facts about bottle design, the development of vending machines and various environmental protection projects. We also paid a visit to the Coca-Cola museum, with its large collection of memorabilia on display from different parts of the world, and from different periods of Coca-Cola’s history.

We then settled down for a short video while enjoying Coca-Cola fresh from the bottling plant. It was definitely refreshing to enjoy a bottle of ice-cold Coca-Cola on such a hot Saturday afternoon! A group photo at the entrance to the World’s Tallest Bottling Plant!

HK StPerth’s Ad

Activity Highlights

1�

Enrolment Form for Study Buddy Groups(Deadline for submission: Tuesday, 19 September 2006)

I. Name : *Mr/Mrs/Ms/Miss (English) (Chinese)

Student Registration No.: Telephone No. (Day-time):

Address:

E-Mail:

II. Please put a ‘ ’ in the box(es) to indicate which Study Buddy Group(s) you would like to participate in.

�0 September 2006, 2:00 pm to �:�0 pm �0 September 2006, �:�� pm to �:1� pm

q Paper 5 (Hong Kong Taxation)

q Paper 7 (Advanced Accounting)

q Paper 6 (Hong Kong Business Law)

q Paper 8 (Auditing)

(Please read the details of the activity carefully before you complete this form.)

q YES, I am interested in joining the Study Buddy Group for the December 2006 examinations and will attend the first meeting.

Signature Date



Study Buddy Groups(for December 2006 Session)

We are organising Study Buddy Groups for students taking Papers 5 to 8 in the December 2006 session of the Accounting Technician Examination. The Study Buddy Groups aim to introduce students to each other so that they can form small study groups to help, support and motivate each other in learning and understanding the various topics in a specific paper.

Study Buddy Groups will be formed 2 months before the examinations. Students attempting the same paper will be put into the same groups. If you are interested in joining a Study Buddy Group, please complete and return the enrolment form on or before Tuesday, 19 September 2006.

Students who wish to join the group are requested to attend the first meeting. In this meeting, students will meet their group members and discuss their study plan together. Details of the first meeting are as follows:

Date: Saturday, 30 September 2006 Time: 2:00 pm to 3:30 pm for Papers 5 & 7 3:45 pm to 5:15 pm for Papers 6 & 8Venue: Seminar Room, Hong Kong Institute of Accredited Accounting Technicians Limited New Office (27th Floor, Wu Chung House, 213 Queen’s Road East, Wanchai, HK)Deadline: Tuesday, 19 September 2006

Activity Highlights

20

Technical Seminar: Stress Management for Accounting Technicians

Have you ever handled tight deadlines, difficult interpersonal relationships, long working hours and demanding professional standards? Career building in this competitive environment requires resilience to the stress that these situations can bring on.

To help members and students learn to deal with stress, we have organised a Technical Seminar on Stress Management. This seminar focuses on learning the practical skills and techniques for managing stress.

Sign up early to avoid disappointment!

Topic : Stress Management for Accounting TechniciansSpeaker : Mr William Tong Principal Trainer and Consultant of Karawell International LimitedDate & Time : Wednesday, 4 October 2006 (7:00 pm – 9:00 pm)Venue : Seminar Room, Hong Kong Institute of Accredited Accounting Technicians Limited New Office (27th Floor, Wu Chung House, 213 Queen’s Road East, Wanchai, HK)Max. no. of attendees : 40Admission Fee : HK$50 for HKIAAT members / students HK$80 for non-HKIAAT members / students Payment by crossed cheque made payable to “Hong Kong Institute of Accredited Accounting Technicians

Limited”. A surcharge of HK$110 will be levied on every dishonoured cheque.Application : Return the completed enrolment form together with payment to the HKIAAT before Friday, 22 September

2006. Enrolments will be processed on a first-come-first-served basis with priority given to registered members / students. Fees paid will not be refunded if the applicant subsequently withdraws.

Remarks : The HKIAAT reserves the right to change the date, venue and time of the seminar should this be necessary. If the event is cancelled, the admission fee will be returned to participants by mail.

I would like to enrol for seats (including the undersigned) for the Technical Seminar on Stress Management and hereby

enclose a crossed cheque for the total amount of HK$ payable to “Hong Kong Institute of Accredited Accounting

Technicians Limited”, being the fee for the seminar on 4 October 2006.


Membership No. / Student Registration No.: Telephone No.(Day-time):

Address:

E-Mail:

Name of guest: *Mr/Mrs/Ms/Miss HKID Card No. (if any)

II. Fees for the seminar: HK$50 per head for HKIAAT members / students

HK$80 per head for non-HKIAAT members / students

Enrolment Form for Technical Seminar on Stress Management(Deadline for submission: Friday, 22 September 2006)

(Please read the details of the seminar carefully before you complete this form.)

Signature Date



Activity Highlights

21

Enrolment Form for Social Visit to Tuen Mun District Integrated Services for the Elderly(Deadline for submission: Friday, 15 September 2006)



Membership No. / Student Registration No.: Telephone No.(Day-time):

Address:

E-Mail:


(Please read the details of the activity carefully before you complete this form.)

Signature Date


I wish to join the Social Visit to Tuen Mun District Integrated Services for the Elderly on Saturday, 23 September 2006 and will /

will not* bring a guest with me.

Social Visit to Tuen Mun District Integrated Services for the Elderly

We are organising a special visit to some elderly people living in Tuen Mun with the kind assistance of Neighbourhood Advice-Action Council (鄰舍輔導會). The visit will be held on Saturday, 23 September 2006 to enable us to celebrate the Mid-Autumn festival with the elderly.

The Neighbourhood Advice-Action Council was set up in 1968, and it is a multi-service non-governmental organisation rooted in Hong Kong with faith, hope and love. Its mission is to stimulate self-help and mutual support; to promote social equity and righteousness; and to strive to provide excellent professional service for the development of a society with caring, respect and sharing. The Council provides a wide range of services to Hong Kong people of different age groups and needs. These services include its Youth Service, Rehabilitation Service, Family and Children Welfare Service, New Arrival Service, Elderly Service, Medical Service and Community Development.

To show our concern for the needy, please participate in this meaningful event to help bring joy and warmth to these elderly people at the time of the Mid-Autumn festival. For more details, please contact Ms Teresa Chan on 2823-0605.

Date : Saturday, 23 September 2006Time : 3:00 pm to 6:00 pmVenue : Tuen Mun District Integrated Services for the ElderlyFee : Free-of-chargeApplication : Members / students interested in joining in this activity should complete the enrolment form and return it to the

HKIAAT before Friday, 15 September 2006. Enrolments will be processed on a first-come-first-served basis with priority given to HKIAAT members / students.

Activity Highlights

22

Examination Technique Seminars(for December 2006 session)

Examination Technique Seminars for the December 2006 Accounting Technician Examination will be coming up soon. These seminars are aimed at assisting students to be better prepared for the coming examinations. The seminars will place special emphasis on question-answering techniques and address the common problems that most students encounter during examinations. Experienced lecturers have been invited to speak at the seminars. Individual seminars will be conducted on a paper-by-paper basis and a free Q & A booklet from the latest session will be distributed to each participant.

Name of Paper Date and Time

Paper 5 – Hong Kong Taxation Saturday, 28 October 2006 1:30 pm - 3:30 pm

Paper 6 – Hong Kong Business Law Saturday, 28 October 2006 3:45 pm – 5:45 pm

Paper 7 – Advanced Accounting Saturday, 4 November 2006 1:30 pm – 3:30 pm

Paper 8 – Auditing Saturday, 4 November 2006 3:45 pm – 5:45 pm

Venue: Seminar Room, Hong Kong Institute of Accredited Accounting Technicians Limited New Office (27th Floor, Wu Chung House, 213 Queen’s Road East, Wanchai, HK)Seminar structure: 90-minute talk plus 30-minute Q&A sessionMax. no. of attendees: 40Admission fee for each seminar: HK$50 per head for HKIAAT students HK$80 per head for non-HKIAAT students Each teacher accompanying a group of 10 or more students will be admitted to the seminar free of charge. Payment should be made by a crossed cheque made payable to “Hong Kong Institute of Accredited Accounting

Technicians Limited”. A surcharge of HK$110 will be levied on every dishonoured cheque.Application: Return the completed enrolment form together with payment to the HKIAAT before Friday, 22 September

2006. Enrolments will be processed on a first-come-first-served basis with priority given to registered students. Fees paid will not be refunded if the student subsequently withdraws.

Remarks: The HKIAAT reserves the right to change the date, venue and time of the seminars should this be necessary. If the event is cancelled, the admission fee will be returned to participants by mail.

Gift Time!

Come and put on the HKIAAT Jacket! We have had some smart jackets in two splendid colours and five different sizes made to give away as souvenirs for our registered members / students. Simply come to the HKIAAT new office at Wu Chung House with your member / student card and the completed coupon below between 25 September and 27 October 2006 to collect your souvenir. Since limited numbers of jackets are available, these great souvenirs will be given on a first-come-first-served basis. So make sure you come as soon as possible to secure your size!

HKIAAT Jacket Coupon

Name:

Membership No. / Student Registration No.:

(The jackets will be given away on a first-come-first-served basis)


Activity Highlights

2�


Student Registration No.: Telephone No.(Day-time):

Address:

E-Mail:


II. Please list below questions or issues that you would like the speaker(s) to cover: (use a separate sheet if necessary)

1. Seminar on Paper

2. Seminar on Paper

3. Seminar on Paper

4. Seminar on Paper

III. Please put a ‘ ’ in the box(es) to indicate your choice(s) of seminar(s).

q Seminar on Paper 5 q Seminar on Paper 7

q Seminar on Paper 6 q Seminar on Paper 8

IV. Fees for each seminar : HK$50 per head for HKIAAT students / HK$80 per head for non-HKIAAT students

(Please read the details of the seminars carefully before you complete this form.)

Signature Date


I would like to enrol on the following seminar(s) and enclose a crossed cheque for the total amount of HK$ payable

to “Hong Kong Institute of Accredited Accounting Technicians Limited”, being the fee for the seminar(s).

Enrolment Form for Examination Technique Seminars(Deadline for submission: Friday, 22 September 2006)


Greenfield

2�

J U D G E A K I H U U

N D A M A G E S K Q A

L L U A G F E E I T E

A A Q C O N T R A C T

W N T T U I H E A T R

M U B A R R I S T E R

I B T R B N U L P Q Q

S I T I Q I L I K I P

A R B I T R A T I O N

Q T P D E T R U O C R

The Puzzle

Thank you for supporting the Puzzle. We appreciate the effort made by all members and students who participated. The first 10 entries with the right answers have won a HK$100 Park’N’Shop cash coupon. Congratulations to the winners!

Want to be in our next batch of winners? Have a go at the puzzle below and send in your entry as soon as possible by fax to 2823-0606. Prizes will be given to the first 10 entries with all the correct answers on a first-come-first-served basis. The answers and winners’ list will be published in the next issue.

Questions for Jul/Aug 2006 issue:

There are 8 law-related terms in the letter grid below. For instance, one is the initials of the Hong Kong Institute of Accredited Accounting Technicians Limited. To be one of our winners, find and circle each of the 8 terms.

To: Hong Kong Institute of Accredited Accounting Technicians Limited, T/Dialogue Entry Form for The Puzzle – Jul/Aug 2006 Issue

Name:

Address:

HKIAAT Member / Student*:

Registration No.:

Telephone No.: (Home)

(Office)

(Mobile)

* Please tick the appropriate box

Yes No

(To keep your Journal in good shape, please use a photocopy of this form.)

Winners of HK$100 Park’N’Shop cash coupon:

1. Ng So Ling2. Cherk Fung Ting3. Yu Lai Sim4. So Pui Shan5. Yu Lai King6. Cheung Wai Fong7. Wong Ngai Fung8. Chan Pik San9. Chung Hiu Man10. Lee Choi Lin, Cherry

Notification has been sent to the winners. Please collect your Park’N’Shop cash coupon at the HKIAAT reception on or before Friday, 29 September 2006.

Answers to the May/Jun 2006 issue puzzle

S T A T U T O R Y X P

O Z B A T R I X X W R

L T G B X R G X Y Z O

I R R L Z X Y Z Z X M

C T L E G A L N V T O

I S Q A E A S M R E T

T U E C T H K I B Z E

O R Y Y Z H O F F E R

R T A B V H K I A A T

Greenfield

2�

The Q&A section is here to answer questions from members and students. You are welcome to write to us at:

Q&A, Greenfield, T/Dialogue(Before 15 September 2006)17/F, Fortis Bank Tower 77-79 Gloucester Road, Wanchai, Hong Kong

(As from 18 September 2006)27/F, Wu Chung House, 213 Queen’s Road East,Wanchai, Hong KongFax: 2823-0606E-mail: [email protected]

Q&A

Q: WillIenjoythesameservicesaftertheHKIAATofficemovestoWuChungHouse?

A: The relocation to Wu Chung House will give us more resources and enhanced facilities, such as lecture theatre for seminars and a well-equipped library for research and study. So please rest assured that you will enjoy better and more efficient services after the move.

Q: I have just joined the HKIAAT as an Associate Member.WhatdoIneedtodotofulfiltheContinuingProfessionalDevelopmentrequirements?

A: All members are required to comply with a minimum of 20 hours of unstructured Continuing Professional Development (CPD) per year upon renewal of membership. Unstructured CPD can normally be achieved through private reading and study. While it is not mandatory for members to undertake any structured CPD programme, however, they are encouraged to do so for their own benefit.

The reporting period for the CPD compliance is a period of 12 months starting from 1 December each year and ending on 30 November the following year. For those who join in the middle of the year, the CPD requirements are imposed on a pro-rata basis. Members who join in November are exempt from any CPD requirements for that year. For more details, please visit our website at www.hkiaat.org.

Q: IplantotaketheAccountingTechnicianExaminationforthefirsttimeinDecember.HowmanypaperscanItake?DoIhavetofollowacertainsequence?

A: Students are allowed to take any number of papers in any sequence in each examination session. However, we do recommend that students to attempt no more than four papers in each session and that they attempt them in sequence.

Q: DoIneedtocompletethewholeofmyacademicqualificationbefore applying for an exemption from the AccountingTechnicianExamination?

Partial completion of your academic qualification will not be considered. You are advised to submit your exemption application with your certificate and official transcripts and appropriate fees after you have completed the whole programme.

Features

26

Specific items of expenditure and their deductibility

In part I of this article, we looked at the deductibility of traveling expenses, subscriptions to professional societies and professional indemnity insurance expenses. Part II covers salary in lieu of notice, clothing expenses, medical expenses, maintenance payments, entertainment expenses and overseas conference expenditure.

Salary in lieu of notice paid by employees to employer

According to case law, this kind of payment is not deductible under section 12(1)(a) of the IRO as it is not wholly, exclusively and necessarily incurred in the production of assessable income. In the local case CIR v Sin Chun Wah (1988), the taxpayer’s claim for deduction of salary in lieu of notice was initially disallowed by the CIR but upon appeal to the BOR, his claim was allowed by the Board. The CIR therefore appealed to the High Court to clarify the application of section 12(1)(a) and was successful, which meant that the CIR’s original decision was restored. In this case, the taxpayer had an employment contract with organisation A and, according to the terms of employment, he had to give three months’ notice of intention to resign or pay the employer one month’s salary in lieu. The taxpayer paid organisation A one month’s salary in lieu of the notice he had failed to give so that he could start his employment with organisation B as early as possible. He claimed the payment as an expense deductible from his assessable income. The BOR allowed the expense based on the reasoning that the taxpayer could not have lawfully earned his salary from organisation B without paying organisation A the salary in lieu of notice. However the High Court Judge was of the view that this was clearly in conflict with the view of the law taken by the Court of Appeal in CIR v Robert Burns (1980). (In that case the legal expenses incurred in appealing against the suspension of a horse trainer’s licence were not deductible as they were not incurred in the production of assessable income, but rather were incurred for the purpose of seeing that he was not prevented from earning his income.)

Clothing expenses

According to DIPN 9, the cost of the replacement of special clothes, such as overalls, required by the nature of the employment would be allowable if it is borne by employees.This is because special clothes and outfits in the nature of a uniform are more likely to be able to meet the requirement of “wholly, exclusively and necessarily” as stipulated in the legal provisions. Under other circumstances the “wholly and exclusively” test would not be expected to be complied with since the clothing will usually serve more than one purpose and

Deductions of Outgoings and Expenses under Salaries Tax (Part II)(Relevant to ATE Paper 5 “Hong Kong Taxation”)

By Ruby K C Cheung, City University of Hong Kong

so is not deductible under section 12 (1)(a). In BOR case D41/92, a solicitor in employment sought to claim deduction of a proportion of clothing expenses including business suits, shirts, dress, shoes, scarves and belts from her assessable income. Her claim was rejected by the Board as it could not be said that the expense was wholly and exclusively incurred in the performance of the taxpayer’s duties. The effect of the word “exclusively” is to preclude a deduction if it appears that the expenditure is not only to serve the purpose of keeping her appearances at work as required by the profession of the taxpayer but also to serve some other purposes such as the private purpose of social entertaining and the provision of clothing that she needs as a human being. In considering whether the test of “necessarily incurred” was satisfied, the Board rejected the taxpayer’s argument that it was an implied term of a solicitor’s employment that she should attempt to dress as lavishly as possible and there was nothing to suggest that the clothing purchased was dictated by the practical requirements of the work of a solicitor. The expense was disallowed as the conditions in section 12(1)(a) had not been met. The Board also went on to decide that there is no jurisdiction to apportion each item of expenditure amongst the purposes for which the expenditure was incurred as section 12(1)(a) does not contain wordings such as “expenses to the extent to which they are incurred”, as appear in section 16(1) under profits tax, which would otherwise allow apportionment to be made.

Medical expenses

If employees’ medical expenses are paid for by an insurance company which has a contract with their employer, there would be no question of having to claim the expense deduction in their salaries tax. However, where employees have to pay these expenses out of their own pocket, there are BOR cases where taxpayers have fought to claim a deduction but have not been successful due to the private nature of the expenses. In BOR case D33/94, a civil servant was suffering from renal disease which required regular expensive dialysis treatment. Although the treatment was given free by the hospital, he had to pay part of the expenses totaling $2,126 in a year of assessment. His claim for deduction of this amount was rejected by both the CIR and the BOR, based on the grounds that section 12(1)(a) clearly disallows expenses of a personal or private nature. Whilst the Board had considerable sympathy for the taxpayer, it had no discretion which it could exercise in his favour.

In a more recent BOR case D72/02, the taxpayer was a salaried employee suffering from liver cancer and he claimed deduction of medical expenses related to his cancer treatment based on the argument that he could not possibly be able to continue to work and earn salaries subject to tax if he did not incur these expenses. The Board did refer to D33/94 and further commented that if the taxpayer’s contention were right, expenses incurred for everyday

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meals or clothes or other daily necessities without which a man cannot live and work would all be deductible. The Board was of the view that medical expenses do not go to a person’s ability to work alone. They also go a person’s health and well-being. Even if he does not work, he will still have to take care of his health. Hence the expenses claimed were necessarily of a personal or private nature and were not “wholly, exclusively or necessarily incurred in the production of the assessable income” within the meaning of section 12(1)(a) of the IRO.

Maintenance payments to ex-spouse

Decisions in BOR cases have shown that such expenses are of a domestic and private nature and do not satisfy the conditions set out in section 12 (1)(a). In D61/99, the taxpayer was divorced from his wife and the court ordered him to transfer his interest in a flat to his ex-wife and the children of that marriage, and to pay maintenance in favour of his ex-wife and their infant daughter. The taxpayer claimed deduction of these maintenance payments from his assessable income. It was held that the maintenance payments were of a domestic and capital nature and therefore not deductible under section 12(1)(a). The fact that those were paid pursuant to a court order does not alter the status of these payments. In the more recent case D82/03, the taxpayer was divorced from his wife under court order. The court ordered maintenance payments to his ex-wife to be deducted from the taxpayer’s salary. The taxpayer lived alone while his ex-wife lived with their two sons. The taxpayer made financial contributions to the maintenance and education of the two sons. It was held that the maintenance payments were neither related to his work nor wholly, exclusively and necessarily incurred in the production of his assessable income. They were therefore not allowable expenses.

Entertainment expenses

DIPN 9 specifically mentions about the treatment of entertainment expenses. In order to make a successful claim, the claimant is expected to be able to show that any expenditure claimed was necessarily incurred and that it would not have been possible to have produced the income from the employment without incurring this expenditure. Mere social entertaining would be debarred as not being “wholly and exclusively incurred”. Any entertaining must be shown to have been necessarily incurred directly as part of business negotiations and records kept should not only give details of the cost and the names of the persons entertained but also detail the nature of the business in question.

In BOR case D37/92, the taxpayer was a sales executive (paid a basic salary and commission based on net sales) of a publishing unit and responsible for concluding advertising sales for her employer’s publication products. She was required to entertain clients and incurred traveling and entertainment expenses in discharging her duties. She had about 150 accounts to handle and it was her usual practice to treat her business clients to lunches and dinners. In fact her employer reimbursed her for part of the expenses which were incurred in connection with

her official duties. In her tax return, she claimed a deduction for expenses over and above the amounts reimbursed by her employer. Out of entertainment expenses totaling $65,157 which were claimed by the taxpayer, the Board allowed an amount of $12,031 related to five vouchers since the Board was satisfied that they fulfilled the statutory tests and the taxpayer was able to be very specific in relation to these vouchers pertaining to expenses incurred at Hotel A. In relation to these expenses, detailed invoices and records were kept giving the names of clients and the nature of the clients’ business. The Board accepted that it was part of the taxpayer’s duty as sales executive of Publication A and Publication B to conduct sales campaign with the help of celebrities and the press. As the campaign generated revenue of $600,000 to her employer, it was reasonable to infer that such a campaign assisted in the sales of advertisements in the publications thereby generating additional commission to the taxpayer. In the same case the taxpayer also claimed a deduction for traveling expenses but this was rejected by the Board as the taxpayer only gave rough estimates of the expenses incurred such as the number of calls to clients per day, modes of transport and normal spending monies per call. She failed to provide precise details and records to support her claim.

Overseas conference expenditure by an academic

In BOR case D89/89, the taxpayer was employed as an academic in a local university. One of his claims in this case was the cost of attending an overseas conference. He contended that, as an academic, he had a duty to contribute to scholarship, that this involved conference participation and that it was a matter of his own judgment what conference he should attend. In this case he obtained a conference grant from the university which covered 90% of the return air fare. He had to pay the balance of air fare and the conference expenditure which included the conference registration fee and charges for accommodation and meals. He claimed a deduction for these expenses in his tax return. It was held that the conference expenditure was not deductible because attendance at the conference was the taxpayer’s own choice as opposed to obligatory. In any event the charges for accommodation and meals were not allowable because even if there was no conference to attend, the taxpayer had to eat and sleep somewhere, and while he was eating and sleeping he was not performing his duties. Lord Cave said the following in Ricketts v Colquhoun [1926]:

“A man must eat and sleep somewhere… Normally he performs those operations in his own home, and if he elects to live away from his work so that he must find board and lodging away from him, that is by his own choice, and not by reason of any necessity arising out of his employment; nor does he, as a rule, eat or sleep in the course of performing his duties, but either before or after their performance.”

Hence the conference expenses claimed did not satisfy the conditions in section 12(1)(a) of the IRO and were therefore not deductible from assessable income.

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Basic EPS ($1,000,000 / 575,000) = $1.74

*Alternatively, the weighted average number of ordinary shares can be computed as follows:

Number of Shares

Time-weighting factor

Weighted average number of

ordinary shares

1 January 2005 500,000 12/12(1 Jan – 31 Dec)

500,000

1 April 2005 (share issue)

100,000 9/12(1 Apr – 31 Dec)

75,000

31 December 2005

600,000 *575,000

500,000 x 3/12(1 Jan – 31 Mar)

600,000 x 9/12(1 Apr – 31 Dec)

= 575,000+

Introduction

In this article, we explain the key principles and steps involved in computing basic and diluted earnings per share.

Basic Earnings Per Share

Basic earnings per share (EPS) focuses on ordinary equity shareholders and is computed as follows:

Hong Kong Financial Reporting Standards: HKAS �� “Earnings Per Share”(Relevant to ATE Paper 7 “Advanced Accounting” & PBE Paper I “Financial Reporting”)

Patrick P H Ng & Chris K C Lau, Hong Kong Institute of Vocational Education (Chai Wan)

Changes in Capital Structure

The problem posed by a change in capital structure is that the denominator for the computation of basic EPS must be adjusted for changes in the number of ordinary shares. These changes may happen in the following ways:

(a) Issue of New and Purchase of Ordinary Shares for Cash

Example 1 – Issue of Ordinary Shares

AB Ltd, with a year-end of 31 December 2005, had 500,000 ordinary shares of $1 each in issue on 1 January 2005. On 1 April 2005 the company issued a further 100,000 ordinary shares of $1 each at full market price for cash. The company’s income statement showed the profit attributable to the ordinary equity holders for the year of $1,000,000.

where:(i) The numerator = Group profit after tax - minority interests - dividends on preference shares

Weighted average number of ordinary shares outstanding during the period

Basic EPS

Profit or loss attributable to ordinary equity holders of the parent entity

(ii) The denominator =

(iii) * Time weighted factor =

For both the examination and practical purposes, usually a monthly basis is usually adopted when computing the time-weighting factor.

Number of ordinary shares

outstanding at the

beginning of the period

*Time- weighting

factor

Number of ordinary

shares issued during the

period

*Time- weighting

factor

Number of ordinary

shares bought back during the period

- x + x

Total number of days in the period

Number of days the shares are outstanding

Example 2 – Purchase of Ordinary Shares

Assume the same fact as in Example 1. In addition, on 1 October 2005 the company purchased 200,000 ordinary shares of $1 each.

In this case, the weighted average number of ordinary shares outstanding during the year is:

Number of Shares

Time-weighting factor

Weighted average number of

ordinary shares

1 January 2005

500,000 12/12 (1 Jan – 31 Dec)

500,000

1 April 2005 (share issue)

100,000 9/12(1 Apr – 31 Dec)

75,000

1 October 2005 (shares repurchased)

(200,000) 3/12(1 Oct – 31 Dec)

(50,000)

31 December 2005

400,000 *525,000

Basic EPS ($1,000,000 / 525,000) = $1.90

500,000 x 3/12(1 Jan – 31 Mar)

+600,000 x 6/12(1 Apr – 30 Sep)

400,000 x 3/12(1 Oct – 31 Dec)

= 525,000+

*Alternatively, the weighted average number of ordinary shares can be computed as follows:

In this case, the weighted average number of ordinary shares outstanding during the year is:

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(b) Bonus Issue, Share Split and Share Consolidation

In a bonus issue (sometimes referred to as a share dividend) or a share split, ordinary shares are issued to existing shareholders for no additional consideration. This means that the number of shares increases from the date of issue with no corresponding increase in resources from this date. In a share consolidation, the number of ordinary shares is reduced without a corresponding reduction in resources.

In these situations, HKAS 33 requires that the weighted average number of ordinary shares outstanding before the bonus issue, share split or share consolidation (whether during the current period or the previous periods) is to be adjusted for the proportionate change in the number of shares outstanding as if the event had occurred at the beginning of the earliest period presented. The practical effect is that all EPS computations, for current and prior years, are to be based on the new total number of shares in issue, in order to maintain the comparability of these figures.

Example 3 – Bonus Issue

AB Ltd., with a year-end of 31 December, had 500,000 ordinary shares in issue on 1 January 2005. On 1 April 2005 the company made a bonus issue of 1 share for every 2 (one-for-two bonus issue) held at 31 March 2005. The company’s income statements showed the profit attributable to the ordinary equity holders of $1,000,000 and $800,000 for 2005 and 2004 respectively. (The reported basic EPS for 2004 was $1.60.)

In this case, the computation of basic EPS for the year ended 31 December 2005 is based on 750,000 (500,000 + 500,000 x 1/2) shares, giving the EPS figure of $1.33 ($1,000,000 / 750,000). Because the bonus issue was without consideration, the time-weighting factor is not included in the computation to adjust for the proportionate change in the number of shares. The bonus issue is treated as if it had occurred before the beginning of 2005, the earliest period presented.

In order to give a meaningful comparative, the effects of the bonus issue are applied retrospectively. Hence, in the 2005 financial statements, the 2004 comparative for basic EPS will be restated to $1.07 ($800,000 / 750,000).

(c) Rights Issue

In a rights issue existing investors are given the rights to subscribe for new ordinary shares in proportion to their existing shareholdings. On one side, new funds are being injected into the company at the date of the rights issue. These funds will be invested and the additional return earned will be included in the earnings figure. On the other side, a portion of each share can be taken as given to investors for free (i.e. bonus) since the rights issue is at a discount to full market price. The bonus element causes the number of ordinary shares to be increased without a corresponding increase in resources.

Regarding the mixed characteristics of the rights issue, a time-weighted average approach will be applied for the computation of the weighted average number of ordinary shares [as in Part (a)] as well as adjusting the number of shares in issue before the rights issue to reflect the bonus element inherent in the issue [as in Part (b)]. The following steps are involved:

Number of ordinary shares outstanding after the exercise of the rights

Step 2: Compute the “adjusting factor” (representing the bonus element) using the following formula.

Fair value per share immediately before the exercise of the rights

Theoretical ex-rights fair value per share

Step 3: Compute the “weighted average number of ordinary shares” using the following formula.

Step 1: Compute “theoretical ex-rights fair value per share” using the following formula.

Fair value of the shares immediately before the exercise of the rights

+Proceeds from the

exercise of the rights

Step 4: Compute the “basic EPS” for current period.

Step 5: Restate the “basic EPS” for previous period(s) reported with following formulas.

Number of ordinary

shares before rights issue

Time- weighting

factor

Number of ordinary

shares after rights issue

Adjusting factor

Time- weighting

factorx x + x

Or Basic EPS for previous period(s) originally reported

÷ Adjusting factor

Profit or loss attributable to ordinary equity holders of the parent entity for previous period(s) reported

Weighted average number of ordinary shares outstanding for

previous period(s) reportedX Adjusting factor

Example 4 – Rights Issue

AB Ltd., with a year-end of 31 December, had 500,000 ordinary shares of $1 each in issue on 1 January 2005. The company made a rights issue of ordinary shares in the proportion of 1 for 4 at an exercise price of $3 per share (i.e. 125,000 shares for $375,000). The fair value of one ordinary share immediately prior to last date to exercise rights on 30 September 2005 was $5. The company’s income statements showed the profit attributable to the ordinary equity holders of $1,000,000 and $800,000 for the years of 2005 and 2004 respectively. (The reported basic EPS for 2004 was $1.60.)

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Diluted Earnings Per Share

HKAS 33 also requires the computation and disclosure of EPS on a diluted basis. The objective of diluted EPS is consistent with that of basic EPS – to provide a measure of the interest of each ordinary share in the performance of a company – while giving effect to all diluted potential ordinary shares outstanding during the period. Diluted EPS indicates to the ordinary equity shareholders that the current level of basic EPS may not be sustainable in future.

The dilution of EPS is caused by “dilutive potential ordinary shares”. Potential ordinary shares are financial instruments or other contracts that may entitle their holders to ordinary shares. Examples of potential ordinary shares include:

(a) financial liabilities or equity instruments, including preference shares, that are convertible into ordinary shares;

(b) options and warrants; and

(c) shares that would be issued upon the satisfaction of conditions resulting from contractual arrangements, such as the purchase of a business or other assets.

Potential ordinary shares are regarded as “dilutive” if their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations. In the opposite situation, potential ordinary shares are regarded as “antidilutive”. The calculation of diluted EPS does not assume conversion or exercise of antidilutive potential ordinary shares. Accordingly, antidilutive potential ordinary shares will be excluded from the computation. The diluted EPS is computed as:

Profit or loss attributable to ordinary equity holders of the parent entity

(equivalent to the numerator used in computing the basic EPS)

-/+ Profit or loss from discontinuing operations

+ *Dividends on dilutive potential ordinary shares which have been deducted

+ *Interest recognised in the period for the dilutive potential ordinary shares

+/- *Expense or income that will no longer be incurred on the conversion of the dilutive potential ordinary shares

Weighted average number of ordinary shares outstanding during the period (equivalent to the denominator used in computing the basic EPS)

+ Weighted average number of ordinary shares that would be issued for no consideration <Note 1> on the exercise of dilutive options and warrants <Note 2>

+ Weighted average number of ordinary shares that would be issued on the conversion of the dilutive convertible bonds into ordinary shares

+ Weighted average number of ordinary shares that would be issued on the conversion of other dilutive potential ordinary shares into ordinary shares

* The figure is required to be adjusted for the tax effect, if any.

Note 1: It is important to note that the difference between the number of ordinary shares issued due to the exercise of options (or warrants) and the number of ordinary shares that would have been issued at the average market price of ordinary shares during the period shall be treated as an issue of ordinary shares for no consideration.

Note 2: Options and warrants are dilutive if they would result in the issue of ordinary shares for less than the average market price of ordinary shares during the period.

In the computation of diluted EPS, dilutive potential ordinary shares shall be deemed to have been converted into ordinary shares at the beginning of the period or, if later, the date of the issue of the potential ordinary shares. The proceeds from the deemed exercise shall be regarded as having been received from the issue of ordinary shares at the average market price of ordinary shares during the period.

Below we consider the two types of potential ordinary shares that are often examined, i.e. convertible debt or equity instruments (for example, bonds or preference shares) and share options or warrants.

(a) Convertible Debt or Equity Instruments

Example 5 – Convertible Bonds

AB Ltd, with a year-end of 31 December, had 500,000 ordinary shares of $1 each in issue on 1 January 2005. The

Step 2: Compute the “adjusting factor” (representing the bonus element).

$5

$4.6

Step 3: Compute the “weighted average number of ordinary shares”.

(500,000 x 9/12 x 1.087) + (625,000 x 3/12) = 563,875

Step 4: Compute the “basic EPS” for 2005.

$1,000,000

563,875

Step 5: Restate the “basic EPS” for 2004 for the rights issue.

$800,000

500,000 x 1.087

= 1.087

= $1.77

or $1.6 / 1.087 = $1.47

= $4.60

Step 1: Compute “theoretical ex-rights fair value per share”:

500,000 x $5 + (500,000 / 4) x $3

500,000 + (500,000 / 4)

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company’s income statement showed the profit attributable to the ordinary equity holders of $1,000,000 for 2005.

On 1 July 2005, the company issued $100,000 worth of convertible bonds. The bonds carry a gross interest rate of 12% and are convertible into ordinary shares at the rate of 1,000 ordinary shares for $1,000 face value of bond. On 1 October 2005, bonds at a face value of $40,000 were converted. Assume a profit tax rate of 15%.

requires the diluted EPS computation to be based on the most advantageous rate from the standpoint of the holders of the convertible securities. This requirement will maximise the effect of dilution and result in the “most dilutive” diluted EPS.

(b) Share Options or Warrants

Example 6 – Share Options

AB Ltd, with a year-end of 31 December, had 500,000 ordinary shares of $1 each in issue on 1 January 2005. The company’s income statement showed the profit attributable to the ordinary equity holders of $1,000,000 for 2005.

On 1 April 2005, the company issued share options to its directors to buy 200,000 ordinary shares at $3 per share, effective from 1 June 2005. The average price of the company’s ordinary shares for the year was $5 per share. 80,000 ordinary shares were issued on the exercise of the options on 30 June 2005.

Step 1: Compute the “basic EPS”.

Step 2: Compute the “diluted EPS”

$1,000,000

500,000 x 12/12 + ($40,000 x 1,000/$1,000) x 3/12 <Note 1>

$1,000,000

510,000= $1.96

=

=

510,000 + ($40,000 x 1,000/$1,000) x 3/12 <Note 2>

+[($100,000-$40,000) x 1,000 /$1,000] x 6/12 <Note 3>

$1,000,000

+[($40,000 x 3/12<Note 2> + $60,000 x 6/12 <Note 3>) x 12%] x (1-15%) <Note 4>

=

$1,004,080

550,000= $1.83=

Note 1: As part of the convertible bond has been actually converted during the year, the weighted average number of ordinary shares for the basic EPS computation will be calculated based on the actual date of conversion during the year.

Note 2: The convertible bond that was converted during the year must be included in the calculation of diluted EPS from the later of the beginning of the year (1 January 2005) and the date of the issue (1 July 2005) to the date of conversion (1 October 2005). The ordinary shares resulting from the conversion are included in both basic and diluted EPS since the date of conversion.

Accordingly, the interest for the $40,000 convertible bond from 1 July 2005 to 30 September 2005 is added back in the computation of the numerator.

Note 3: For the computation of the 2005 diluted EPS, it is assumed that the outstanding convertible bond of $60,000 was converted into 60,000 ordinary shares as at 1 July 2005, which is later of the beginning of the period and the date of the issue.

Accordingly, the interest for the $60,000 convertible bond from 1 July 2005 to 31 December 2005 is added back in the computation of the numerator.

Note 4: The interest (net of tax) is added back. Since the interest is a deductible charge for tax purposes, the impact on earnings is computed net of tax.

In some cases, the conversion rate may change over time. For example, different conversion rates are structured in order to motivate the holders of the convertible debt or equity instrument to convert their securities into ordinary shares as late as possible. Where there are different conversion rates, HKAS 33

Step 1: Compute the “basic EPS”.

Step 2: Compute the “diluted EPS”

$1,000,000

500,000 x 12/12 + 80,000 x 6/12 <Note 1>

$1,000,000

540,000= $1.85

=

=

540,000 + (80,000 – 80,000 x $3/$5)<Note 2> x 3/12 <Note 3> + (120,000 - 120,000 x $3/$5) <Note 2> x 9/12 <Note 4>

$1,000,000 =

$1,004,080

584,000= $1.71=

Note 1: As part of the share options has been exercised during the year, the weighted average number of ordinary shares for the basic EPS computation will be calculated based on the actual date of exercise (i.e. 30 June 2005) during the year.

Note 2: The effect of increasing the weighted average number of ordinary shares for no consideration (i.e. effectively a bonus issue) is computed as follows:

Number of ordinary shares issued due to the exercise of share options (or warrants)

- Number of ordinary shares that would have been issued at the average market price of ordinary shares during the period

(Consideration raised from the exercise of the share options / Average market price)

Number of ordinary shares that would have been issued for no consideration

Note 3: The 80,000 share options that were exercised during the year must be included in the calculation of diluted EPS from the later of the beginning of the year (1 January 2005) and the date of the issue (1 April 2005) to the date of conversion (30 June

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2005). The ordinary shares resulting from the conversion are included in both basic and diluted EPS since the date of conversion.

It is important to note that the exercisable date (1 June 2005) of share options is not relevant in the calculation of diluted EPS.

Note 4: The 120,000 options that were not exercised are assumed to have been exercised on the later of the beginning of the period (1 January 2005) and the issue date (1 April 2005).

Where a company has a number of types of potential ordinary shares, HKAS 33 requires that each type of potential ordinary shares is considered separately, rather than in aggregate, in determining whether the potential ordinary shares are dilutive or antidilutive.

The order of the consideration may affect whether a certain type of potential ordinary shares is dilutive or not. Therefore, each type of potential ordinary shares is considered in sequence with the most dilutive first and the least dilutive last for the purpose of maximising the dilution in EPS. In particular, dilutive potential ordinary shares with the lowest earnings per incremental share are included in the diluted EPS calculation before those with a higher earnings per incremental share.

Example 7 – Multiple Potential Ordinary Shares

AB Ltd, with a year-end of 31 December, had 500,000 ordinary shares of $1 each in issue on 1 January 2005. The company’s income statements showed the profit attributable to the ordinary equity holders of $1,000,000 for 2005. The basic EPS for 2005 is $2 ($1,000,000/500,000). The company also has the following in issue:

(a) Share options were granted to directors in 2003 giving them the right to subscribe for ordinary shares between 2004 and 2008 at $1.5 per share. There were 200,000 options outstanding at 31 December 2005.

(b) The company has $5,000,000 of 10% convertible bonds in issue. The terms of conversion of the bonds (per $200 face value) exercisable at the option of the holders, at the date of issue (1 January 2004) were:

Date of conversion Number of shares 31 December 2005 12 31 December 2006 13 31 December 2007 14 31 December 2008 15 No bonds have as yet been converted.

(c) There are 150,000 convertible preference shares in issue. The cumulative dividend is $0.10 per share and each preference share can be converted into two ordinary shares. The preference shares can be converted in 2007.

The average market price of the company’s ordinary shares for the year was $5 per share. Assume a tax rate of 15%.

Step 1: Examine the earnings per incremental share of each type of potential ordinary shares

Type Earnings per incremental share Sequence

Share options$0 <Note 1>

(200,000 – 200,000 x $1.5/$5)=$0

First (The most dilutive)

Convertible bonds$5,000,000 x 10% x (1 – 15%)

$5,000,000 x 15/$200=$1.13

Third (The least dilutive)

Convertible

preference shares

150,000 x $0.10 <Note 2>

150,000 x 2=$0.05 Second

Note 1: Options and warrants are generally included first because they have the earnings per incremental share of zero; hence they do not affect the numerator in the computation.

Note 2: No adjustment is made for tax since dividends in Hong Kong are not subject to tax in Hong Kong.

When compared to the basic EPS of $2, all three potential ordinary shares above are dilutive. However, in order to compute the maximum possible dilution in EPS overall, each factor must be examined in turn starting with the most dilutive to the least dilutive. The following table shows the computation:Step 2: Compute the diluted EPS based on the sequence

determined in Step 1

The above shows that a greater dilution in EPS occurs after the convertible preference shares are converted to ordinary shares but the convertible bonds, which are antidilutive, are not. HKAS 33 requires the diluted EPS to be stated as $1.08.

Conclusion

The computation of EPS, especially for dilutive EPS, is a complicated topic. Students have to make particular effort to understand this topic well. Students are also advised to familiarise themselves with the topic by doing the computation exercises in their textbooks, referring to the principles and steps outlined above.

Earnings Number of shares EPS

Basic $1,000,000 500,000 $2

Share options

-

$1,000,000

140,000(200,000 – 200,000 x $1.5/$5)

640,000

$1.56(Dilutive)

Convertible

preference

shares

$15,000(150,000 x $0.10)

$1,015,000

300,000(150,000 x 2)

940,000

$1.08(Dilutive)

Convertible

bonds

$425,000[$5,000,000 x 10% x (1

– 15%) ]

375,000($5,000,000 x 15/$200)

$1.10(Antidilutive)

$1,440,000 1,315,000

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Advanced standing for local and overseas bachelor degrees

Professional Bridging Examination (PBE)#

Accounting Technician Examination1. Financial Accounting2. Business Communication3. Cost Accounting4. Information Technology

Applications in Accounting5. Hong Kong Taxation6. Hong Kong Business Law7. Advanced Accounting8. Auditing

www.hkiaat.org

ContentsNew Financial Reporting Study Manual 7 December 2006 Examination Timetable 7 Important Notes for Candidates 7 Accounting Technician Examination Snapshot of the June 2005 Graduates

Documents