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.”
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 standards.”
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 Wesfarmers.
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.”