INTRODUCTION.docx - INTRODUCTION The International Ethics...

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INTRODUCTION The International Ethics Standards Board (IESBA) issued their final pronouncement on Responding to Non-Compliance with Laws and Regulations (NOCLAR) in July 2016. The pronouncement is an examinable document from the exam year starting September 2017. In practice, the pronouncement is effective from July 2017 with earlier adoption permitted. The new standard adds sections 225 and 360 to the IESBA’s Code of Ethics for Professional Accountants (the Code). The purpose of the new sections is to address the responsibilities of Professional Accountants in Public Practice (including auditors) and Professional Accountants in Business when they become aware of NOCLAR. The standard also contains consequential and conforming amendments to a number of existing sections of the Code. WHAT IS NOCLAR? NOCLAR is defined by the new standard as comprising acts of omission or commission, intentional or unintentional, committed by a client, or by those charged with governance, by management or by other individuals working for or under the direction of a client which are contrary to the prevailing laws and regulations. The non-compliance which the standard addresses is concerned with laws and regulations which are generally recognised to have a direct effect on the determination of material amounts and disclosures in the client’s financial statements. It also addresses other laws and regulations which may be fundamental to the operating aspects of the client’s business, to its ability to continue its business or to avoid material penalties. It is worth noting that the standard does not include within its scope any matters that are clearly inconsequential or any personal misconduct which is unrelated to the business activities of the client or employer. BACKGROUND AND AIMS The NOCLAR project originated from an attempt to address concerns from the regulatory community and other stakeholders that the Professional Accountant’s (PA’s) duty of confidentiality under the Code was acting as a barrier to the disclosure of possible NOCLAR to appropriate public authorities. While emphasising the binding nature of the duty of confidentiality, the existing Code identified general circumstances where disclosure may be appropriate including when a PA considers it to be in the public interest. The existing Code acknowledged that this is a difficult area to decide on and that as a result, it will often be appropriate to take legal advice. The new standard aims to raise the ethical bar for the global accountancy profession and to increase the emphasis on PAs’ duties and responsibilities in this area. It importantly represents the first time that accountants have been permitted to set aside the duty of confidentiality, which is a fundamental principle in the Code, in order to disclose NOCLAR to appropriate public authorities in the circumstances prescribed. The new standard is intended to sit alongside and supplement the existing guidance on this area contained within the International Standards on Auditing (ISAs). It is noteworthy in this regard that
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