Non-Compliance with Laws and Regulations – Not just the auditor’s responsibility
All corporate entities should be aware that in response to public interest concerns, and the lack of guidance for accountants on how to deal with a situation where a client or employer is breaching the law, the International Ethics Standards Board for Accountants, (“IESBA”) recently made amendments to their standards which have subsequently been followed by Australia’s Accounting Professional & Ethical Standards Board (“APESB”). The recently released Non-Compliance with Laws and Regulations (NOCLAR) will be incorporated into APES 110 Code of Ethics for Professional Accountants (“APES 110”) and will be applicable to all professional accountants whether in practice, commerce or industry.
The NOCLAR amendments outline a conceptual framework and guides professional accountants on how to act in the public interest when they become aware of non-compliance or suspected non-compliance with laws and regulations committed by a client or employer. The potential illegal acts could be a breach of a range of laws and regulations including, but not limited to:
- Fraud, corruption and bribery
- Money laundering, terrorist financing and proceeds of crime
- Securities markets and trading
- Banking and other financial products and services
- Data protection
- Tax and pension liabilities and payments
- Environmental protection
- Public health and safety.
NOCLAR covers acts of omission or commission, intentional or unintentional, committed by a client or those charged with governance, by management or by other individuals working for or under the direction of a client.
The responsibilities under NOCLAR differ depending on whether an accountant is:
- An employee of a corporate entity;
- A senior professional (part of the management team or a member of governance);
- An auditor of an entity; or
- A member in public practice interacting with his or her client in a professional capacity.
Fundamentally, the standard requires all professional accountants:
- To comply with the fundamental principles of integrity and professional behaviour;
- To alert management or those charged with governance about actual or suspected NOCLAR to enable them to take appropriate action; and
- To take further action in the public interest, if necessary, if those charged with governance or management fail to act.
The further actions that accountants could undertake include disclosure to regulators (in the absence of corrective action by the entity involved) or resigning from the engagement or employment.
The NOCLAR provisions also highlight the personal impacts of the accountant disclosing possible illegal acts to regulators. If there are concerns about the accountants physical safety or there is no legislation in place (for example, whistleblowing legislation) that could protect the accountant, then potentially they should not disclose to regulators or appropriate authorities.
NOCLAR gives members of professional accounting bodies the right (but not the duty) to inform an appropriate authority without breaching confidentiality, even when such reporting is not required by law.
What does any entity that employs accountants need to do?
The revised APES 110 comes into force on 1 January 2018. In order to be compliant with the regulations, all entities that employ accountants in their business will need to update their systems so that internal policies and procedures cover the NOCLAR requirements. In addition accountants will need training on the impact of NOCLAR and their new responsibilities.