Accountants must act on suspicions

A new standard requires accountants to consider their obligations if they uncover or suspect illegal acts such as fraud, corruption, bribery and money-laundering.

A bundle of new non-compliance-with-laws-and-regulations (NOCLAR) requirements released by the Accounting Professional & Ethical Standards Board will change the game.

The ground-breaking Australian standard adopts an international approach and requires accountants to set aside the principle of confidentiality when illegal acts are suspected.

No longer can accountants ignore suspected non-compliance with laws and regulations.

NOCLAR applies to accountants in commerce and industry, the public sector and not-for-profits, as well as accounting firms.  Accountants will be obliged to act in accordance with a heightened public interest in compliance.

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.

Examples of NOCLAR are:

  • Fraud, corruption, bribery
  • Money-laundering, terrorist-financing, proceeds of crime
  • Securities markets and trading
  • Banking, financial products and services
  • Data protection
  • Tax and pension liabilities and payments
  • Environmental protection, and
  • Public health and safety.

There are many real-life examples of breaches.  You can read about them daily in the Press.  So, it’s time we asked ourselves what we would do if we suspect non-compliance.

The new ethical rules respond to the following key public-interest concerns:

  • The duty of confidentiality in the code’s acting as a barrier to the disclosure by professional accountants of potential NOCLAR to public authorities
  • Professional accountants and auditors simply resigning from employer/client relationships without NOCLAR issues being appropriately addressed, and
  • A lack of guidance to help accountants in working out how best to respond to potential NOCLAR, a situation that may often be difficult and stressful.

The responsibilities under APES 110 Code of Professional Ethics for Professional Accountants differ depending on whether an accountant is:

  • An employee of an entity
  • A senior professional (part of the management team or a member of governance)
  • An auditor of an entity, and
  • A member in public practice interacting with his or her client in a professional capacity.

The NOCLAR rules are incorporated in new sections 225 (Members in Public Practice) and 360 (Members in Business) of APES 110.

They are effective from 1 January next year.

From an auditing perspective, NOCLAR requirements are reflected in ASA 250 Consideration of Laws and Regulations in an Audit of a Financial Report (now includes updated references to the APES 110 Code of Ethics for Professional Accountants resulting from the new standard NOCLAR) and ASA 2017-2 Amendments to Australian Auditing Standards (containing conforming amendments related to changes in the APESB Code).

Both have an application date of 1 January 2018.
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