We shall continue our discussion today on the current and emerging tax issues by focusing on the other aspects of non-compliance with laws and regulations to guide corporate and individual taxpayers of the impacts on their businesses.

What a professional accountant should do when he/she encounters NOCLAR

  • Auditor Cont’d

If the auditor considers that management has not taken appropriate action, the auditor should determine if further action is needed in the public interest. This will depend on various factors including:

  • The legal and regulatory framework;
  • The urgency and pervasiveness of the matter;
  • Whether there is credible evidence of substantial harm to stakeholders;
  • Whether there is an appropriate authority to report to;

– Any professional or legal advice obtained;

  • The availability of legal protection for the auditor;
  • The existence of actual or potential threats to the physical safety of the auditor or others.

The auditor must also consider whether a reasonable and informed third party, weighing all the specific facts and circumstances at that time, would conclude that the auditor has acted in the public interest in disclosing the non-compliance to the authorities.

If the auditor concludes that it is in the public interest to disclose the NOCLAR, then they must make disclosure to the appropriate authority, even if not required to do so in law.When making such disclosure, the auditor shall act in good faith and exercise caution when making statements and assertions.The auditor should also consider whether it is appropriate to inform the client of their intentions before disclosing the matter.

The auditor should consider withdrawing from the client engagement (if the law allows them to resign).  If the auditor resigns from the engagement, they must provide details of the NOCLAR to the prospective auditors, when responding to a professional enquiry.  This disclosure must be made regardless of whether the audit client has given permission for the auditor to discuss their affairs with the prospective auditors, subject to any legal restrictions.

Professional Accountants  in practice other than auditors

If a practicing accountant who is not an auditor identifies or suspects NOCLAR, they must first raise it with management of the client, or those charged with governance of the client, subject to the legal and regulatory requirements noted above.  If the client is an audit client, the accountant must take steps to communicate the NOCLAR to the audit team, usually the engagement partner.

If the client is not an audit client, the accountant should consider informing the external auditor of the client if applicable.

The accountant should then consider whether any further action is needed in the public interest, e.g. disclosing the NOCLAR to an appropriate authority, or resigning from the client relationship.  Whether such a disclosure is in the public interest will depend on various factors. These are outlined above in the section for auditors. If the accountant concluded that it is in the public interest to disclose the NOCLAR, then they must make disclosure to the appropriateauthority, whether or not the law require them to do so.

When making such disclosure, the accountant shall act in good faith and exercise caution when making statements and assertions.  The accountant shall also consider whether it is appropriate to inform the client of the accountant’s intention before disclosing the matter.

Non-senior professional accountants in business

The responsibilities of a non-senior professional accountant in business are more basic than those for a senior accountant.  The non-senior accountant must escalate their concerns of NOCLAR to their immediate superior, or the next highest level of authority within their organisation.  If they are concerned that their superiors are complicit in the NOCLAR, then they should use any established internal whistle-blowing mechanism.

The non-senior accountant must then determine if further action is needed in the public interest, in light of the action taken by their superiors, or those charged with governance.  In exceptional circumstances, the non-senor accountant may determine that disclosure to an appropriate authority should be made in the public interest.  The nature and extent of any further actions will depend on various factors:

  • The legal and regulatory framework;
  • The urgency and pervasiveness of the matter;
  • Whether there is credible evidence of substantial harm to stakeholders;
  • Whether there is an appropriate authority to report to;
  • Any professional or legal advice obtained;
  • The availability of legal protection for the non-senior accountant;
  • The existence of actual or potential threats to the physical safety of the non-senior accountant or others.

The non-senior accountant must also consider whether a reasonable and informed third-party, weighing all the facts and circumstances at that time, would conclude that non-senior accountant has acted in the public interest in disclosing the non-compliance to the authorities.

We shall continue with the other aspects of non-compliance with Laws and Regulations in the next publication.