International Ethics Standards Board for Accountants (IESBA) Non Compliance with Laws and Regulations (NOCLAR) Roundtable
Brussels, 13 June 2014
Not in recent memory has an IESBA consultation provoked as much discussion and debate as the IESBA’s exposure draft Responding to a suspected illegal act, (more recently renamed Non Compliance with Laws and Regulations to bring it into line with the terminology used by the other standard setting boards), which was put out globally for consultation back in 2012.
Whilst the profession welcomed the concept of further guidance on reporting obligations, in the context of the ethical principle of confidentiality where suspected illegality is identified, shivers were sent down the spines of stakeholders at the prospect of:
- a requirement providing services to an audit client to disclose NOCLAR to an appropriate authority if the client had not self reported
- a requirement that professional accountants providing non audit services to a client that is not an audit client report instances of NOCLAR to the external auditor
- a right for those working in business, and those providing non audit services to non audit clients to disclose specific NOCLAR to an appropriate authority in certain circumstances, with an expectation that such a right would be exercised.
Accepting the feedback, the IESBA went back to the drawing board, and embarked on global roundtable discussions on how to develop these proposals mindful of the strength of views expressed in the consultation response.
I attended to bring to the table representing the perspective of AAT members, both in practice and in business, who typically see the world from a different perspective to auditors and practitioners working in larger environments. The conclusion I have drawn from the day? It’s going to be extremely challenging to square the circle on a global scale on this one! That being said, in the UK, we are fortunate to have a number of mechanisms and safeguards to support professional accountants to do the right thing when you need to when it comes to disclosure. Had you have been sat around the table, I’m sure those of you in practice with your Anti Money Laundering systems in place, would have been grateful for the safeguard you have been afforded, including the tipping off provisions.
Anxieties expressed around the table included the fact that in some jurisdictions, the risks associated with the disclosure proposed included the personal physical safety of professional accountants and their families. These were likely to entirely be the jurisdictions that would benefit from these provisions being enforced through the code in order to combat endemic corruption. But at such a high personal cost, what position does this leave professional accountants in?
In smaller groups, we analysed two case studies from the perspectives of a diverse range of accounting professionals. The only thing we all agreed upon consistently was that in considering the examples, regardless of the hat we were wearing, we all recognised that some sort of ethical intervention was necessary, and doing nothing wasn’t an option. What that ethical intervention might be depended entirely upon the context from which the party was looking at the issue. This neatly reflects the value brought by the conceptual framework approach to ethical decision making as promoted by the IESBA, which recognises that threats and safeguards to ethical decision making will vary depending on the engagement, and the role you are playing within it. The question mark over whether it would be appropriate to breach confidentiality in these circumstances was largely quelled by an overwhelming view around the room that legal advice should be sought prior to doing this.
There was also a full discussion around whether there would be an implication that accountants would be expected to have a knowledge of laws and regulations, beyond what they might be expected to know by virtue of their professional knowledge. In my view, common sense says no, this shouldn’t be the case, but that being said, what would happen if a professional accountant came across something which they suspected indicated non-compliance with a law or regulation, but would not be known through professional knowledge ordinarily held? Is this reportable, or not?
In conclusion, it was a really useful debate, and it is clear there is still a challenge to overcome for the global standard setter to develop guidance that will be universally applicable, answering the questions that we continued to muse throughout the day.
A revised exposure draft is expected in January 2015, which will have reflected on previous comments made, and the value added through the round table discussions. I look forward to responding to this on your behalf. In the meantime, please feel free to share your thoughts, and contribute to the global debate on this.
13 August 2014
About the author
Tania Hayes is AAT’s Head of Conduct and Compliance, with responsibility for membership professional standards, including professional ethics, professional discipline, and compliance monitoring of members in practice. Tania chairs the Accountants’ Affinity Group of the Anti Money Laundering Supervisors Forum, leading on the strategic development of the UK’s supervisory regime for monitoring compliance with Anti Money Laundering legislation.