NOCLAR: When public good means accountants should speak up

The Code, through NOCLAR, allows accountants to disclose a suspected illegality to an appropriate authority without being in breach of confidentiality.

Accountants can now speak out without breaching confidentiality principles if they suspect illegal activity under new NOCLAR ethical guidelines.

Does the public interest override client or employer confidentiality? It can be a tricky issue for accountants, but the Responding to Non-Compliance with Laws and Regulations (NOCLAR) addition to APES 110 Code of Ethics for Professional Accountants provides a way through.

NOCLAR will apply from 1 January 2018 for all CPA Australia members. It outlines frameworks for accountants on how to respond when they suspect their clients or employers of doing something illegal.

This addition addresses an important issue. Professional accountants have to act in the public interest by complying with the Code and its principles, which include integrity and confidentiality.

However, complying with the principle of confidentiality would not be in the public interest when an accountant’s client or employer is involved in significant illegal activities.

"NOCLAR does not go as far as forcing accountants to disclose non-compliance when it is not required by law or regulation."

The Code, through NOCLAR, allows accountants to disclose a suspected illegality to an appropriate authority – such as a regulator, the tax office or the police – without being in breach of confidentiality.

The Code already requires professional accountants to not accept clients or work for employers that are known to be involved in illegal activities. Doing so would threaten your ability to comply with relevant laws and regulations, which is a fundamental requirement of the Code, and with its principles.

Professional accountants must also comply with any laws that require disclosure to a specific authority, as is the case with auditors having to notify the Australian Securities and Investments Commission (ASIC) if they have “reasonable grounds to suspect” a significant contravention of the Corporations Act, such as fraud or insolvent trading.

NOCLAR does not go as far as forcing accountants to disclose non-compliance when it is not required by law or regulation. This is appropriate given the Code cannot offer any protection for making such a disclosure. NOCLAR does, however, require you to do something to address suspected illegal activity.

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Generally, under NOCLAR you must:

  • Identify any non-compliance or illegality, clarify understanding and communicate with appropriate parties
  • Evaluate a response and consider if any further action is needed
  • Address the non-compliance by considering what further action is needed, if disclosure to an authority is appropriate, and if you should resign from the engagement or employment.
Resigning from your engagement or employment is not a substitute for the other actions required under NOCLAR. The professional accountant cannot turn a blind eye, resign and move on, without addressing the suspicion of the illegality.

Importantly, the Code advises members to obtain legal advice before disclosing a suspected illegal act to an appropriate authority, without client or employer consent.

NOCLAR requirements differ for auditors, public practitioners and other accountants in business, but they impose new requirements for all CPA Australia members.

Find out more about the addition at cpaaustralia.com.au/noclar

Dr Eva Tsahuridu is CPA Australia’s policy adviser, professional standards and governance.

Read next: Ethical help is at hand for those grappling with client confidentiality


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