Responsibilities for Reporting NOCLARPosted: June 22, 2015
For those of you unfamiliar with yet one more acronym. NOCLAR stands for NOn-Compliance with Laws And Regulations. The International Ethics Standards Board of Accountants (IESBA) has issued a new exposure draft on your responsibilities to report NOCLAR at your employer as a Professional Accountant in Business (PAIB). If you are thinking, why do I care if some international board issues something, let me explain to you how things work. The IESBA is a standard setting board under the International Federation of Accountants (IFAC). As a member of IFAC, the AICPA is generally required to ensure its ethics requirements are in alignment with IFAC requirements as promulgated by the IESBA. Even if you are not a member of the AICPA and therefore not covered directly by their ethics standard, many state boards follow the AICPA ethics standards. So if you are a CPA, what the IESBA adopts is likely to eventually impact you.
You might remember the IESBA first proposed rules in this area in 2012. That initial proposal was met with a significant amount of feedback that the proposed rules were not based on the real world positions many professional accountants, let alone PAIBs, find themselves in. The IESBA listened and then listened some more by hosting a series of roundtable discussions across the world including one in Washington DC that I attended. The resulting new exposure draft that was released in May (I believe) takes a much more reasonable approach to the expectations of PAIBs to report on NOCLAR at their employer.
First the proposed rules divides PAIBs into two classes when it comes to expected responsibilities around NOCLAR. Senior PAIBs, including directors, officers and senior employees able to exert significant influence over and make decisions regarding the organizations resources (human, financial, physical and intangible), are held to a higher level of expectations than other PAIBs. Senior PAIBS are responsible for setting the right tone at the top as well as more tactical controls, policies and whistle-blowing procedures with the organization they work in. In addition, if a NOCLAR occurs, senior PAIBS are expected to take steps to have the NOCLAR rectified and they should alert the external auditor about a NOCLAR that has occurred.
Other PAIBs have a lower level of responsibility, but they still do have some responsibilities. Those include seeking to obtain and understanding of the matter and escalating the matter to their supervisor, or next higher level of authority if the NOCLAR involves those directly above the PAIB in the chain of command. If the organization has a whistle-blowing procedure then the PAIB should also follow those procedures.
If you are interested in exploring this subject more, the exposure draft can be found here. If you want to provide feedback on the proposed rules you have until September 4th to submit your comment letter to the IESBA.