Crossing the non-compliance line

There are steps you can take to respond to suspected fraud

Responding to a client’s non-compliance with the law is not an easy undertaking, but there is guidance on the way.

Every professional accountant knows that compliance with laws, regulations and professional standards is a fundamental responsibility. These obligations are set out clearly in APES 110 Code of Ethics for Professional Accountants.

These are mostly straightforward, but what should you do when you have a strong suspicion that a client or employer is not complying with applicable laws or regulations?

This presents a dilemma. Unlike ethical choices, where we have to choose between doing what is right and what is wrong (i.e. being honest or dishonest), ethical dilemmas involve competing rights and duties. In this instance, accountants face the competing principles of confidentiality and acting in the public interest.

This has been a key project of the International Ethics Standards Board for Accountants (IESBA), which develops the global ethics code for the accounting profession. IESBA’s current proposals, which have been exposed for comment, are that sometimes it is appropriate for professional accountants not to comply with the principle of confidentiality if it is in the public interest.

If the changes to the Code are issued as proposed, then public practitioners would need to consider their responsibilities, which differ in relation to:

  • Audits of financial statements
  • Professional services other than audits of financial statements
In relation to audits of financial statements, the proposal requires members to:
  • Comply with applicable standards, laws and regulations
  • Raise the identified or suspected non-compliance with management and those charged with governance
  • Determine if further action is required
  • Determine whether to disclose the matter to an appropriate authority – when not required to do so by law or legislation 
  • Determine whether to withdraw from the engagement – when permitted by law or regulation
  • Document the steps taken
If a public practitioner undertaking an audit of financial statements determines that disclosure of confidential information to an authority without the client’s consent is an appropriate action because it’s in the public interest, then this is an appropriate disclosure in the circumstances, even though the member did not comply with the principle of confidentiality. For practitioners who are not undertaking audits of financial statements, the proposal requires them to:
  • Comply with applicable standards, laws and regulations
  • Discuss the non-compliance with management and with those charged with governance
  • Consider whether suspected non-compliance should be disclosed to the external auditor – if there is one
  • Consider whether suspected non-compliance should be disclosed to an appropriate authority
  • Consider whether they should remain associated with the client
  • Document the steps taken
All comments received by IESBA will be considered in its December meeting. The overview of the proposal can be found at bit.ly/iesba-proposal
CPA Australia’s submission can be found at: cpaaustralia.com.au/noncompliance

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May 2020
May 2020

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