Mothers - investing for life

LAST Sunday was Mother's Day. It also marked the end of my son's first week at playsch

Although it was only a two-hour trial session, his mother was not allowed to remain in school.

It was probably a lot more emotional for my wife than for my son as she lingered outside the school gates, straining her ears and listening for the familiar cries or perhaps the occasional laughter.

It was another milestone in the journey of life for my young son, and a milestone for my wife and I as parents.

Special meaning

Mother's Day holds special meaning for us, as our son was born on this day two years ago.

After a “stressful” week for the three of us, perhaps this is what my son might say if he could articulate it himself (Of course, I am making the assumption that I can read his mind and his heart): “My mother is a source of inspiration. She sacrificed her career to be with me every step of my way. I am indeed privileged. My mother is my pillar of strength. I was so relieved when I saw her after my first day at school. I tried to be strong, but I was very scared too.

“My mother is a source of comfort. Her kisses will make all sorts of pain go away. I am always comforted by her magical touch.”

Many would remember an old Chinese children's song that glorifies a mother's love for her children. Translated in English, it goes something like this:

“In the world only mothers are good. Children with mothers are like precious treasure. When one is in the embrace of one's mother, it is a blessing without compare...”

As far as I can remember, there has not been a song written about fathers with the same level of importance as when compared to songs written about mothers. Perhaps, in the past, fathers were the breadwinners and mothers the caregivers.

However, over time, fathers are becoming more involved in the parenting process.

In fact, I know of someone (let's call him EJ) who took a break from his career to spend time with his children. Now that his children are grown up, he has gone back to work.

A well-known personality and an accomplished journalist, he shares the opportunity cost of being at home with his children.

But he says it is well worth it. He went through the experience of seeing his children grow up first-hand.

From a financial perspective, the sacrifice or opportunity made by the stay-home caregiver can be easily computed in dollars and cents.

It is a very simple computation - monthly salary plus benefits plus annual bonus multiplied by the number of years, factoring in inflation and potential increment. This cost can be significant.

Intangible cost

On top of that, sacrifices made in the form of lifestyle adjustments, which are almost always required when a family with children changes from dual income to single income, also have to be taken into account.

This intangible social/family cost is less easy to compute but can be easily appreciated by most families.
Some might think that being a full time stay-home parent equates a life of luxury. My wife would be the first to refute that.

She is not living the life of a “tai tai”. For stay-home parents, life is physically tiring, emotionally draining and financially straining. No pay, no days off and no medical leave.

But just like EJ, my wife knows that it is indeed a privilege to be a stay-home mother. One does not get to hear from the maid or the caretaker how one's child took his very first step, how he articulated his first word, or even how he fell off the bed. My wife experienced all these first-hand.

Hence, allow me to be a contrarian and turn this equation of economic and social costs upside down. Spending time with our children is not a cost, but an investment.

A cost or investment?

What is the difference between a cost and an investment? A cost is an expense and outlay, just like a teh tarik, which costs RM1.40, or a holiday costing RM2,000.

But an investment is like a RM20,000 master's degree programme, a RM100,000 unit trust investment or a RM1mil shophouse.

When we think of investments, we automatically think of the payback and returns.

EJ had invested in his children and my wife is still investing in our child. Not only does EJ not regret his choice, he proudly proclaims that his “payback and returns” are his emotional wealth and experiences that are unique to him alone.

No amount of money can replace or replicate something as intangible as that. In fact, he says that he would do the same all over again.

My wife echoes that sentiment, and I know many stay-home parents will agree too.

To them, Mother's Day and Father's Day are not just days for them to receive a rose, a box of chocolates or a special meal.

It is a day when one receives the annual statement of one's time-honoured and privileged investment made in the names of one's own children.

There is no perfect guide to parenthood; no “control-alternate-delete” function to reboot and restart. Parenthood is tough and sometimes mistakes are made.

However, by being there to guide and love our children, hopefully we can raise them up to be the better person we all hope to be.

“Investment” is not always about money, and I quote Joyce Maynard: “It's not only children who grow. Parents do too. As much as we watch to see what our children do with their lives, they are watching us to see what we do with ours. I can't tell my children to reach for the sun. All I can do is reach for it, myself.”

To all mothers, hope you had a happy Mother's Day. And as for fathers, our moment of recognition will come next month!

COMMENT By TAY HAN CHONG ■Tay is senior vice-president and senior head of UOB's personal financial services division.

Basic shelter versus investment instrument

THE strong rebound in property markets of various Asian cities like Shanghai, Hong Kong, Singapore and Kuala Lumpur from one of the worst modern-day financial crisis shows that property has multi-functions as a basic shelter over one's head and an investment instrument.

A person's address is also increasingly becoming a gauge of one's financial capability and social status.
That's why luxurious houses in highly-sought-after addresses are still selling like hot cakes in the region despite the prevailing uncertainties in the global economy.

It shows there is much liquidity in the system and property investment is probably mopping up quite a big chunk of the surplus cash.

Asians are well known to be big savers and it is not surprising that the region is now leading the global economic recovery.

In Singapore, there has been a hike in demand since late last year and even mass housing are fetching prices of S$800 to S$1,000 per sq ft while the luxurious range are from S$2,000 to S$4,000 per sq ft.

Despite the rising prices, both Singaporeans and foreigners are snapping up properties which further fuelled price increases and caused worries over a potential asset bubble.

One of the reasons for the huge appetite could be the city-state's growing status as a global city and the rising number of high net-worth foreigners making Singapore their home.

What they find palatable include Singapore's personal safety and security, cleanliness, good governance, ease of travel through its smooth and integrated public transport system, and a tolerant and enterprising society.

As a Malaysian investor with a growing presence in the island-state, YTL Corp Bhd managing director Tan Sri Francis Yeoh said in his speech at the YTL Concert of Celebration at the Singapore Botanic Gardens last Saturday: “The world loves doing business in Singapore because it upholds the rule of law, welcomes talents and skills, and excels in acceptance and tolerance.”

To prevent a rush for landed houses in Singapore, foreigners are only allowed to buy such properties in Sentosa Cove and not in other parts of the country.

There is no restriction on the purchase of condominiums and apartments by foreigners, although only permanent residents can buy public housing.

Likewise, in its effort to promote itself as a real estate destination for foreigners, Malaysia should look at the holistic and integrated approach to the whole exercise.

The efforts will be more effective if prompt actions are taken to improve the quality of life for the local people and these include security and safety, good governance, integrity, and a well-balanced and tolerant society.

Of course, the other important factors include efficiency of the public transport, overall cleanliness and general well-being.

Foreigners are usually attracted to destinations that have rich natural living cultures and practices, and that is why places like Bali and Phuket are havens for them.

It is fine to promote a growing appetite for property investment among the people but it should not be at the expense of sky-rocketing prices that will affect the average people.

Bank Negara's move on Thursday to raise the overnight policy rate by another 25 basis points shows that the Government is concerned that a rising leverage on speculative activities could cause a financial imbalance in the banking system.

Obviously, the Government fears that the active mortgage market will fuel an asset bubble.

This is because a prolonged cheap mortgage environment will tend to enhance speculative activities in the property market. Right now, the upper-middle customers are buying mainly for investment purposes.

And with the intense competition among banks to use up their high liquidity, lending activities for property purchase is bound to continue.
Perhaps the next increase should be by at least 50 basis points to bring it closer to the normal pre-crisis rates.

THE REAL ESTATE WITH ANGIE NG
angie@thestar.com.my

Deputy news editor Angie Ng hopes the growing population of borderless citizens who have homes in different parts of the world will promote greater understanding and respect among people of all races.

The importance of tax planning

With the June 30 deadline for submission of corporate tax returns looming, chartered tax adviser and author of Malaysian taxation books, Richard Thornton, wants to remind small and medium enterprises (SMEs) the importance of tax planning.

Considering that more than 90% of Malaysian businesses are SMEs, Thornton says it is imperative that the owners are aware of the tax rules applicable to them so that these can be factored into their business plans.

“A lot of businesses are carried out by partnerships or sole traders, and these are the ones that need tax advisors and tax knowledge. It is about structuring business transactions in such a way that the incidences of taxes is mitigated in a lawful way,” says Thornton. “Tax planning is permitted but it is largely overlooked and left to tax agents.”

For example, a wife makes a good business partner. A married couple pooling resources makes sense, but to reduce their tax liability, the husband and wife should be assessed separately as this allows them to claim more personal reliefs than if they were to opt for a joint assessment.

Author and chartered tax advisor Richard Thornton with a copy of his 100 Ways to Save Tax in Malaysia for Small Businesses.

 

“She also benefits from the scale rates of tax and if her chargeable income is not more than RM35,000 from a tax rebate. If she is in the business, she also becomes self-employed and the income can be divided between both spouses, and less tax is paid,” he writes in 100 Ways to Save Tax in Malaysia for Small Businesses. Another example is treating the car as a business expense.

If the vehicle is bought on hire-purchase, the finance cost can be deducted as a business expense and a capital allowances deduction can be claimed for the purchase price, although there is a limit.

“Using more than one vehicle, as most Malaysians do these days, gives businessmen the opportunity, or burden, according to your point of view, of bringing several vehicles into the mix,” he writes.

Thorntons answers other questions pertaining to taxes for SMEs.

Why is it important for SMEs to know the workings of the tax system considering that there are tax experts to help them?

Many SMEs do not have, or cannot afford, regular access to tax experts and may only have contact with a tax agent around the time of submission of the annual tax return.

To be effective, tax planning needs to be done in advance. If a manager has a good knowledge of the tax system, he can save the business a lot of money.

Is there a shelf life to your book 100 Ways to Save Tax in Malaysia for Small Businesses?

Not at all. It is completely up to date, with the latest legislation effective for 2010, and has many tips on tax strategies that will reduce the burden of tax payable in 2011 and after.

Right now, there is no separate tax structure for SMEs. They follow either the individual or the corporate tax structure. Would it be more viable if SMEs have their own tax structure and why?

Small businesses often grow into big ones and I am not in favour of a formal structure that would place a firewall around them.

Also, we have to remember that SMEs may start out as sole traders or partner enterprises and go corporate after they grow to a suitable size. This gives them flexibility to opt for the tax structure that suits them at the time, whether individual tax as a family business or corporate income tax.

But having said that, I would like to see more of the tax incentives that apply to companies made available to non-incorporated businesses.

Are there any Asian countries with a special tax structure for SMEs and how successful is this?
I am not aware of any.

What are the differences between an individual tax structure and a corporate tax structure?

They relate mainly to the extraction of profits. Sole traders and partners have no constraints on the withdrawal of profits whether by way of salaries or other benefits.

However, they are liable for tax on the whole of the profit.

A company has to pay regard to the “corporate veil” because the owners of the company are not the same as the company itself.

Owners receive dividends, which are paid out of profits, after the company has paid tax on them and they have no personal tax liability on them. However, if the shareholders are also directors, they may receive directors’ fees on which they, and not the company, pay tax.

Because there is no separate structure for SMEs, how will an SME know which one to choose – an individual or a corporate structure – in order to best mitigate taxes? 

Tax-wise, the decision is usually made by reference to the withdrawal of profit comparisons and in particular their influence on comparative tax rates.

At the top end, there is little difference with companies being liable at 25% and individuals at 26% at the present time but in the fledgling stage, a business is often looking at much smaller amounts and maybe at losses, which can have significantly different tax consequences for corporate and non-corporate businesses.

How will the impending goods and services tax (GST) impact SMEs? 

A non-registration threshold of RM500,000 per annum has been mooted and many small businesses will welcome this as a way to avoid the burden of compliance, which will be quite heavy for all businesses.

Besides applying tax on goods and services, there is the need to keep track of what they pay to suppliers so that they can obtain the tax credits they are entitled to.

What can SMEs do to mitigate this (in relation to the GST)?

SMEs that cannot keep below the registration threshold should make sure that they are well informed on the workings of the GST system as early as possible and set up their administrative and accounting systems in good time so as to minimise the problems of the changeover.

Y THEAN LEE CHENG
leecheng@thestar.com.my

Opinions that matter

 What it means when auditors qualify opions?

THERE was some concern recently when the auditors of at least five listed companies issued qualified audit opinions on these companies' latest financial statements, while the auditors of another listed company drew attention to the fact that the company's ability to go on operating was hanging in balance.

All this came out on April 30, the last day for companies with a Dec 31 year-end to submit their 2009 audited accounts to Bursa Malaysia. Under the exchange's listing rules, a listed company is obliged to immediately announce any qualification in an auditors' report.

The five companies that failed to get clean audit opinions are Nam Fatt Corp Bhd, Patimas Computers Bhd, Mangotone Group Bhd, Wawasan TKH Holdings Bhd, and KBB Resources Bhd.

Essentially, a qualified opinion means that the auditors had incomplete information in doing their work, or they may disagree with the company's management on certain assumptions.

In the case of Luster Industries Bhd, its auditors, Grant Thornton, did not qualify its opinion on Luster's financial statements, but pointed out to shareholders that the company's fate rests on whether it can stage a turnaround.

Ng Mi Li says in certain circumstances, an auditor's report may be modified by adding an 'emphasis of matter' paragraph to highlight a matter affecting the financial statements.

 

Financially distressed Luster submitted its proposed regularisation plans to the authorities in September last year. Bursa Malaysia rejected the proposals in February and Luster is awaiting the outcome of its appeal.

Expressing the right opinion

PricewaterhouseCoopers (PwC) Malaysia partner Ng Mi Li says a qualified opinion should be expressed when the auditors conclude that they cannot issue a clean opinion, but that the effect of any disagreement with management or any limitation on the scope of work is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion.

An unqualified opinion should be expressed when the auditor concludes that the financial statements give a true and fair view or are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

In certain circumstances, an auditor's report may be modified by adding an “emphasis of matter” paragraph (not tantamount to a qualification) to highlight a matter affecting the financial statements.

The emphasis of matter is used, for instance, in the case of a material matter regarding a company's status as a going concern, when there is a significant uncertainty. The Luster audit opinion is an example.

“An uncertainty is a matter whose outcome depends on future actions or events not under the direct control of the entity but that may affect the financial statements,” says Ng.

Another instance is when there is a need to report on matters other than those affecting the financial statements.

“For example, if an amendment to other information in a document containing the audited financial statements is necessary and the entity refuses to make the amendment, the auditor would consider including in the auditor's report an emphasis of matter paragraph describing the material inconsistency,” she says.

Basis of qualification

According to Wong Liu & Partners, the auditors of vermicelli maker KBB Resources, the counting of the finished goods (amounting to RM27.48mil as at Dec 31, 2009) held at different warehouses of a subsidiary was carried out without the auditors' presence and the management did not arrange for their observation.

The auditors also could not ascertain the quantities of raw materials amounting to RM10.89mil. These led to the qualified audit opinion. A source familiar with the situation says KKB Resources have taken steps to resolve the issue.

The Patimas audit qualification was due to the amount owed to the company by former subsidiary Tsun Macro Sdn Bhd, amounting to RM6.4mil.

The problem is Tsun Macro is in liquidation and the auditors say they are unable to obtain sufficient audit evidence to ascertain the recoverability of the amount outstanding. However, the Patimas management says the servicing of the debt is covered by an August 2005 agreement.

“Despite the fact that the court granted a petition order in 2007 to wind up Tsun Macro, Patimas has been receiving repayment in accordance with the terms of the financial assistance settlement agreement,” says Patimas managing director Law Siew Ngoh.

“In relation to the auditors' report, we would encourage readers not to misinterpret the qualification as an 'adverse opinion' qualification. In our case, it was due to the limited audit evidence for this particular matter that gave rise to the qualification.

“Notwithstanding the matter highlighted, the financial statements of Patimas have been properly drawn up to show a true and fair view of the company's financial position.

“As for the outstanding amount of RM6.4mil, the sum would be repaid in full within the next two years. It is important to note that the outstanding is secured by personal guarantees and this mitigates the risk posed by Tsun Macro's liquidation,” says Law.

Wawasan TKH's auditors say they qualified their opinion on the company's 2009 accounts because they could not determine the effect of impairment adjustments, if any, on the carrying amounts of the property, plant and equipment of the disposable food-wares unit and goodwill of Wawasan TKH.

Moore Stephens AC, the auditors of Mangotone, cited a long list of factors as to why it expressed a disclaimer opinion on the company's latest annual financial statements, starting with the “substantial doubts” that the company can continue to be a going concern.

A disclaimer

Ng of PwC says: “A disclaimer of opinion should be expressed when the possible effect of a limitation on scope is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence and accordingly is unable to express an opinion on the financial statements.”

She says that the addition of a paragraph emphasising a going concern problem or significant uncertainty is ordinarily adequate to meet the auditor's reporting responsibilities regarding such matters.

“However, in extreme cases, such as situations involving multiple uncertainties that are significant to the financial statements, the auditor may express a disclaimer of opinion instead of adding an emphasis of matter paragraph,” she says.

“A disclaimer of opinion is expressed when the auditor is unable to render an opinion as to whether the financial statements show a true and fair view.”

By TEE LIN SAY
linsay@thestar.com.my

Ideas that help you get ideas of your own

AUTHOR and speaker Fredrik Haren was recently in Kuala Lumpur to give a series of talks on creativity and to launch his book The Idea Book, which has been translated into various languages.
Haren, a Swede, was Speaker of the Year in 2007 and was selected as one of “Sweden’s 100 most inspiring persons” by the magazine “Leva” in 2008. CHOO LI-HSIAN caught up with him during his trip here.

Author and speaker Fredrik Haren was in Kuala Lumpur recently to launch The Idea Book

 

BizBooks: What motivated you to write The Idea Book?

Haren: We started interesting.org to inspire people to be more creative. I wrote The Idea Book because I had read a lot of creativity books (hundreds of them!) and yet most of them did not inspire me to be more creative. I basically wrote the creativity book that I myself wanted to read.

Many of us have had a good idea at some time or another. However, creativity is more than just creating. It is about taking a good idea and transforming it into a successful and sustainable concept. I don’t just write about creativity but I apply my own creativity techniques.

The success of The Idea Book is a good example of how you can use innovative ways to create, produce, promote, market and sell an idea. I share this experience with people at my talks.

How did you go about writing the book?

I have written seven books. It takes me about one year to write a book. About 99% of that time is usually spent collecting stories, examples and other material that I can use. Just in the last six months, I have been to more than 14 countries and have interviewed people from all kinds of fields about creativity. The actual writing is something I do in a two- to three-week stretch at a beach somewhere, where I write from 7am to 11pm.

What is the main message that you want to convey through the book?

That everyone can and should get more creative. The book will inspire the really creative to try harder and help the less creative to start becoming more creative.

What is so different about the book?

First of all, the book is 50% book and 50% notebook – 150 pages about ideas and 150 pages for your own ideas. It is a creativity book that is creatively done.

The book pages contain insights, case studies and anecdotes on creativity, innovation and inspiration from various fields.

Leonardo Da Vinci and Thomas Edison understood the importance of writing down their ideas and observations in notebooks. Da Vinci produced a large number of sketches, notes and scribbling. After Edison’s death in 1931, an amazing 3,500 notebooks were found in his home.

So, the idea with the 150 white pages is to inspire you to start developing your own ideas and personalising your own copies with these ideas and thoughts, making each copy unique. This makes the book something interactive – a dialogue, not a monologue.

It is a book about ideas that help you get ideas of your own.

Who has bought the book? Where has the book been sold around the world?

Usually you are not supposed to answer that your product is for “everyone” because that means it is for “no one”; but The Idea Book has really been bought by everyone! From 10-year olds to 78-year olds. From really, really creative people to people who did not think they were creative.

Hundreds of organisations have also bought The Idea Book including HP (which bought 400 copies as corporate gifts to clients), Hyper Island (the top multimedia school in Sweden bought it as training material for their students) and Deutsche Bank in Germany (which bought 600 copies for internal creativity training). I have also sold 700 copies to the Singapore government.

It has been sold to more than 40 countries and has been translated into 14 languages (including Mandarin and Japanese).

Aside from the book, what else do you do to promote creativity?

I do keynote speeches, talks, seminars, training sessions and workshops. I have done more than 1,000 such speaking events on creativity and idea generation in over 30 countries.

Who have you worked with? Who do you normally work with?

I have worked virtually in all fields with literally hundreds of different organisations, from the Supreme Court of Singapore to Oracle, the software company.

I have also worked with nurses, hotels like the Ritz Carlton, prime schools like Insead and Hyper Island as well as companies like IBM, Microsoft, Nokia, Ericsson, Sony Ericsson, China Mobile, HP, GE, IKEA, Volvo, Pfizer, Ogilvy, Saab, Absolut Vodka, the Swedish National Bank and the Finance Ministry of Singapore.

What are the most interesting projects and assignments that you have worked on?

There are just so many! Just last month, for example, I was invited to Iran (!) and did, among other things, a speech for 200 women at an all-women university where everyone was dressed the same. And the theme of my speech was “The value of doing things differently”.

I was also invited to speak to the Police Coast Guard of Singapore, which is working actively to become more creative. I talked to employees of the Swedish Ministry of Commerce – including the minister himself – about why Sweden has to become more innovative. A few weeks before that, I spoke to an audience in Norway that included the Prime Minister, the Prince of Norway and the richest man in Norway.

However, I find it just as interesting to be invited to be part of a programme at a school that is trying to change the way they teach.

Why is creativity important?

To improve our quality of life, we need to find more creative and innovative ways of doing existing things and then making those necessary changes happen. How we do things today is just not sustainable in the long run.

At interesting.org, we focus on getting people to understand that each and every one of us in a country, community or organisation needs to more creative, not just a choice few.

How can we each promote creativity?

Short answer, by buying The Idea Book for everyone you know! Longer answer, there is not just one thing that needs to be done; it is many things.

Like changing how we teach our children, how we approach things in our personal life to how we do our work and train our staff in companies. We should focus on teaching people how to think differently instead of just to absorb information.

Almost everyone I have ever interviewed – and I have interviewed thousands – say that they would like the people around them (e.g. their children, colleagues, staff) to be more creative or innovative.

We should not only talk about the value and importance of creativity but to also do something concrete to personally develop our own creativity, apply it in our own lives and in the communities or organisations we belong to.

·Haren is finalising his second book (and accompanying website) entitled The Developing World on why the developing world has an advantage over the west in the area of innovation and creativity.

For more information on The Developing World, go to www.theideabook.org/video/, where the last three videos deal with this book.
Haren and other experts talk about why creativity will become more important on BFM radio station’s current affairs programme, The Incident Room, on May 22.