The pursuit of high

The Australian Financial Reporting Council’s outgoing chairman,
Charles Macek, predicts the development and acceptance of
international standards will continue to be a big challenge for the
profession. He speaks to Arvind Hickman about his
time at the council.

As a board member of some of Australia’s largest public
companies and the head of Australia’s Financial Reporting Council
(FRC), Charles Macek has a unique insight into the Australian
profession. The man who guided the FRC through the adoption of IFRS
believes the development and acceptance of international standards
will continue to challenge the profession and stakeholders of the
nation’s capital markets.

He says although IFRS adoption ran smoothly, there has been some
criticism due to an increase in the regulatory burden.

“[Because of] the present need to reconcile the old Australian GAAP
to IFRS, there is a lot of additional commentary in the notes to
the accounts. [At] one of the companies that I sit on the board of,
there would probably have been an extra 30 pages in the notes of
its [most recent] financial reports. That’s a burden and makes the
reports very lengthy and user unfriendly,” he says. “I think a lot
of the criticism reflects transitional issues and now that we’re in
the second year of reporting we don’t need reconciliation, so the
length of the reports can be shorter.”

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Macek says the FRC and other stakeholders are closely monitoring
global developments on the convergence between US GAAP and IFRS. “I
guess there is a view in Australia that convergence means
converging to something that is closer to US GAAP, which means it’s
not preferred because we prefer to have principles-based
standards,” he remarks. “Having said that, I think people see
convergence as a worthwhile step and not necessarily as the end
goal in itself – eventually, even [as] a stepping stone to the
ultimate [goal], which would be a single set of high-quality

Macek has been the FRC chairman since 2003 and will soon hand over
the chair to Australian Securities and Investments Commission
(ASIC) commissioner Jeffrey Lucy. Lucy begins his three-year term
as FRC chairman on 11 December 2007.

Macek has extensive experience in the capital markets, having spent
30 years of his executive career in the funds management industry.
More recently, he has built an impressive portfolio of
non-executive directorships, including of telecommunications giant
Telstra and resources, energy and retail conglomerate

His tenure at the FRC will be remembered as a period of stability
in which the council expanded its core functions under the
Corporate Law Economic Reform Program (Audit Reform and Corporate
Disclosure) Act 2004 and decided to adopt IFRS.

The Australian FRC was established at the end of 1999 as an
independent statutory committee to take responsibility for the
Australian Accounting Standards Board (AASB). The members of the
FRC are nominated by various stakeholder groups outside the
profession but appointed by the Treasurer.

The main functions of the FRC in its earlier days were to appoint
members of the AASB and set the strategic directive of the body. In
2004, the council was given additional powers to have the same
function over the Australian Auditing and Assurance Standards Board
as well as oversight responsibility of the auditing profession only
as it relates to independence. The major auditing oversight
functions, such as inspections, are conducted by ASIC.

Macek tells TA the primary responsibility of the FRC is to give the
strategic directive to the auditing standards board – a broad
framework under which they should be developing standards. “The
strategic directive that we gave the auditing board was that
firstly they should make auditing standards in the interest of the
investing public. Secondly, they should start with the ISAs
produced by the International Accounting Standards Board. Thirdly,
they shouldn’t feel constrained just by ISAs. If they could
strengthen the standard in terms of protecting the public then they
should feel free to do so,” he says.

As auditing standards have the force of law in Australia, Macek
says they have to be written in a form that can be legally
enforced. “In that sense the Australian board has probably gone
through its own version of the clarity project ahead of the
international board,” Macek says, while adding that the new
standards came into effect on 1 July 2006.

“Initially, there was a bit of a push back from the notion that
auditing standards could be legal instruments. In other words, a
breach of what was previously an auditing standard would now be a
criminal offence and that has a different connotation. However,
it’s not the intent to include the risk that auditors run. It’s
really just to make the standards fit in with the Australian
construct, which is the fact that accounting and auditing should
have the force of law.

“I think we’ve gone through a period where after the collapses in
the early part of the decade there was an acceptance by the
profession that the world had changed. Some of the changes they
didn’t like, such as a loss of control of the standard-setting
processes. They are now, however, increasingly concerned about the
compliance burden, and I think with some justification.”