The International Ethics Standards Board for Accountants (IESBA)’s pronouncement “Responding to Non-Compliance with Laws and Regulations” became effective on 15 July 2017. This framework was developed to guide professional accountants (as defined) on how to best act in the public interest and how to respond when confronted with non-compliance with laws and regulations (NOCLAR).
NOCLAR is defined as any act of omission or commission, intentional or unintentional, committed by a client or employer, including by management, those charged with governance or by other working for or under the direction of the client or employer, which is contrary to prevailing laws or regulations.
This pronouncement comes after a six year project that was initiated to address concerns from the regulatory community and other stakeholders about (as per the IESBA website):
- The duty of confidentiality acting as a barrier by auditors to properly disclose NOCLAR;
- Auditors simply resigning from an engagement because of NOCLAR; and
- A lack of guidance in these circumstances.
The scope of the project was eventually broadened to be applicable to all professional accountants in public practice and in business, not just auditors. This will therefore include accountants that are members of the South African Institute of Chartered Accountants (SAICA), South African Institute of Professional Accountants (SAIPA) and the Chartered Institute of Management Accountants (CIMA), irrespective of whether they work in a public practice or in commerce and industry.
The IESBA’s website states that the issue at the heart of the debate was about “what is reasonable to ask of professional accountants, given their responsibility to act in the public interest when they encounter or are made aware of NOCLAR or suspected NOCLAR, when providing a professional service to their clients or carrying out their duties for their employer.”
There are different requirements set for the way auditors have to respond to NOCLAR as opposed to professional accountants in public practice, as well as senior-level professional accountants as opposed to other professional accountants. In broad terms the response would include:
- Raising the identified or suspected NOCLAR with the appropriate persons at the client or employer;
- Understanding and complying with any relevant laws and regulations, which might include the reporting of the matter to an appropriate authority;
- Attending to or assisting with or evaluating the rectification, remediation or mitigation of the consequences of the NOCLAR and the reducing of the risk of re-occurrence;
- Determining if any further action is needed in the public interest (which can include withdrawing from the client or employer relationship); and
- Attending to any disclosure (if necessary) to the auditor.
- In exceptional circumstances, it may be necessary to disclose the matter immediately to an appropriate authority if there is an imminent breach of law or regulation that would cause substantial harm to stakeholders.
As Unik Professional Service uphold all applicable laws and regulations, and adhere to regulations set by the professional bodies that regulate us, we will henceforth include the provisions of NOCLAR in any engagement letters and act in accordance with the requirements.