Auditors, especially in South Africa with its “Reportable irregularities” requirements, are painfully aware of their duties to report irregularities. These duties are well defined in the Auditing Professions Act, International Standards on Auditing, etc.
But do other accountants have any duties to report non-compliance with laws and regulations? Say you were employed, do you need to do anything if you become aware of non-compliance? Report it? To whom? Are you even allowed to report it (bear in mind that we are bound by a code of confidentiality)?
The Ethics Code of the International Ethics Standards Board for Accountants (IESBA) contains sections that apply to all accountants, not only auditors or even those that are employed by audit firms, referring to these accountants as “professional accountants”. In a South African context, this would cover CA(SA)’s, ACCA’s and members of the South African Institute of Professional Accountants (SAIPA).
In December 2016, a section was added to this code in an effort to assist professional accountants in dealing with Non-Compliance with Laws And Regulations (known as the NOCLAR provisions).
Relevant laws and regulations, in this case, include those that have a link to the accountant’s professional training and expertise – specifically those that have a direct effect on the financial statements and those that may be fundamental to the operations or may cause material penalties. Matters that are clearly inconsequential and personal misconduct that is not related to the business are not included.
The NOCLAR provisions are based on a comprehensive framework that differentiates between three categories of professional accountants:
- Other professional accountants in public practice
- Professional accountants in business that are in senior positions
- Other professional accountants in business
All of the above persons are expected, after obtaining a thorough understanding of the matter, to discuss it with the appropriate level of management, or directors if necessary, to enable them to take appropriate action. The principle has always been that it is the responsibility of management, with the oversight of directors (those charged with governance) to ensure compliance with relevant laws and regulations, and that principle hasn’t changed.
However the standard setters believe professional accountants also have a responsibility to the public interest, and not only to their client, firm or employer. IESBA refers to the acceptance of this responsibility as “a distinguishing mark of the accountancy profession”. Because of this recognition of the social role of accountants, the code now expects the accountant to determine if, after reporting as explained in the previous paragraph, the public interest demands any further action.
Depending on the accountant’s assessment of the adequacy of the response by management or directors after reporting to them, further action may include:
- Disclosing the matter to an appropriate authority (even if not required by law),
- Resigning or otherwise withdrawing from the relationship, and
- Informing a successor accountant accordingly.
These steps are obviously not taken lightly and will depend on many factors, including evidence of harm to any stakeholders and other legislation that may even prohibit disclosure. The accountant’s confidentiality requirement obviously plays a role, but the code makes it clear that confidentiality may be overridden in cases where it is determined that disclosure is appropriate.
The new requirements were effective from 15 July 2017, where after the IESBA is hoping that professional accountants will respond in a timely and appropriate way to identified or suspected non-compliance with laws and regulations, which will hopefully have a deterring effect on further non-compliance.