With whistleblowing law changes just around the corner, all accounting firms need to ensure they have an appropriate whistleblower regime in place.
National whistleblower legislation will come into effect on 1 July 2019, creating an enhanced regime for accountants and auditors to report tax-related misconduct and contraventions to financial regulators, including the Australian Taxation Office (ATO).
The Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2019 effectively expands the protections of practitioners to pass on information about clients and employers where there is strong evidence of wrongdoing, such as tax evasion and other criminal behaviour.
As well as protecting whistleblowers from civil, criminal and administrative liability in relation to disclosures, the new legislation provides for practitioners and others to remain anonymous when reporting alleged misconduct.
Whistleblowing law changes are a complement to NOCLAR
Importantly, the legislation is an extension of the reporting options already available under the Non-compliance with Laws and Regulations (NOCLAR) section of APES 110 Code of Ethics for Professional Accountants (the Code), issued by the Accounting Professional and Ethical Standards Board (APESB).
NOCLAR provides a framework to guide professional accountants in what actions to take in the public interest when they suspect illegal or non-compliant activity by a client or employer.
What is NOCLAR? Responding to Non-Compliance with Laws and Regulations
“The whistleblowing legislation will not change the way in which accountants approach NOCLAR,” says Josephine Haste CPA, CPA Australia’s policy adviser for ethics and professional standards.
“Rather, [it] extends the options available for practitioners to consider when managing NOCLAR.”
Haste notes that practitioners often (incorrectly) interpret NOCLAR as a requirement for mandatory reporting of any breach, regardless of severity or materiality.
“That is not the case,” she explains. “NOCLAR is a process by which the practitioner determines an appropriate course of action with respect to an identified or imminent breach which is likely to have a significant effect on the financial statements or financial reporting of the entity or individual.”
All other avenues need to be explored
APESB chief executive officer Channa Wijesinghe FCPA adds that while the new whistleblowing legislation will complement NOCLAR, it should be interpreted by taxation advisers in the context of their ethical obligations.
“Currently, tax laws preclude disclosure of client information without the client’s consent,” Wijesinghe says.
“The new whistleblower legislation addresses breaches of tax legislation.”
As such, what steps should a practitioner take in reporting a client they suspect could be evading tax or otherwise breaching the law?
“Where there is substantial harm to a range of stakeholders, and if the client is not taking appropriate action to address the identified issues, under the NOCLAR provisions the Code allows disclosure to an appropriate regulator subject to certain considerations,” Wijesinghe says.
These include whether the alleged activity is precluded by law or regulation if there is credible evidence of substantial harm to an entity, stakeholders or the general public, the existence of an appropriate authority, and whether by reporting an act there is a likelihood of physical harm to the whistleblower or others.
Wijesinghe warns blowing the whistle on a client or employer suspected of wrongdoing should not be taken lightly.
“This is an extreme step and should only be considered once all other avenues are explored,” he says. “In most cases, it will be difficult to meet the ‘substantial harm to a range of stakeholders’ threshold.
Dr John Purcell FCPA, CPA Australia’s policy adviser for environmental, social and corporate governance, says that from an audit regulation perspective it is significant the federal government has chosen to harmonise the whistleblowing laws across a number of statutes.
This affects companies’ regulation by the ATO, Australian Securities and Investments Commission, Australian Prudential Regulation Authority, and other entities affected by financial services legislation.
“Harmonisation is always beneficial,” Purcell maintains. “More substantial changes around the Corporations Act will potentially have some impacts on accountants within entities, but not necessarily public practitioners.”
In addition to providing criminal and/or civil immunities for whistleblowers and replacing the current “good faith” test with a requirement that a whistleblower has objectively reasonable grounds to suspect wrongdoing, the legislation increases penalties for individuals (up to A$200,000) and corporates (up to A$1 million) for disclosing a whistleblower’s identity or causing that person detriment.
Purcell says the legislation is good news for accountants because it will allow practitioners to apply their varied skills around monitoring corporate behaviour and detecting breaches.
“It will allow them to have a stronger role in corporate governance,” he says. “In the Corporations Act, it is also now quite clear that auditors – external and internal – are parties to which protected disclosures can be made.
“Previously, whistleblowing laws were narrowly based, but they now pertain to any form of criminal wrongdoing under the law punishable by a prison sentence of 12 months or more.”
These activities not only include where the ‘regulated entity’, officer or employee is suspected to have committed an offence under the Corporations Act, but also fraud, corruption or bribery, money laundering, terrorism financing, or receiving proceeds of crime.
The Whistleblower Bill requires public companies and large proprietary companies (with turnovers of A$25 million or above, gross assets of at least A$12.5 million, or at least 50 employees) to have a whistleblower policy in place by 1 January 2020.
Every policy must include information about the protections available to whistleblowers, the persons or organisations to whom protected disclosures can be made, how the company will support whistleblowers and protect them from detriment, and how the company will investigate protected disclosures.
“CPA Australia supports these changes to the whistleblowing legislation and sees them moving in a good direction,” Purcell says.
“Over coming months, it will be important for companies to get on board with this and to put in place a whistleblower regime.”
Three points to remember
- The new whistleblowing legislation comes into effect on 1 July 2019 and provides added protections to tax practitioners and others wanting to report client misconduct to the ATO or other authorities.
- The legislation does not conflict with the NOCLAR framework.
- Practitioners working as employees in a public corporation or large company, including accountants and auditors, will have the same legal whistleblower protections as those in private practice.
Accountants reporting tax issues may be protected under whistleblower laws