It is not often professional and ethical standards in the accounting profession cause so much controversy, confusion and concern. However, after six years of consultation with a wide range of global stakeholders and to be implemented in over 100 countries, that is exactly what NOCLAR has caused.
What is NOCLAR and what does it mean for accountants in Australia?
NOCLAR is the acronym for Responding to Non-compliance with Laws and Regulations. The official line is that NOCLAR is a framework designed by the International Ethics Standards Board for Accountants to guide professional accountants in what actions to take in the public interest when they become aware of a potential illegal act committed by a client or employer. Some might call this a type of mandated whistleblowing. Or in other words, it will no longer be possible to simply turn a blind eye to breaches or potential breaches of the law. It has a start date of 1 January 2018 in Australia, with earlier adoption being available.
NOCLAR is defined as any “act of omission or commission, intentional or unintentional, committed by a client or employer, including by management or by others working for or under the direction of the client or employer, which is contrary to prevailing laws or regulations”. The laws and regulations covered, violations of which are acts of NOCLAR, are those that directly affect the client’s or the employing organisation’s financial statements or its business in a material or fundamental way.
The standard applies to all categories of professional accountants, including auditors, accountants in public practice and accountants in organisations, including those in businesses, government, education and the not-for-profit sector. It addresses breaches of laws and regulations that deal with matters such as fraud, corruption and bribery, money laundering, financial products and services, securities markets, environmental protection, data protection, banking, proceeds of crime, securities trading, tax and pension liabilities, tax payments, terrorist financing and public health and safety.
Among other matters, the new standard provides a clear pathway for professional accountants to disclose potential non-compliance situations to appropriate public authorities in certain situations without being constrained by the ethical duty of confidentiality. It also places renewed emphasis on the role of senior-level accountants in business in promoting a culture of compliance with laws and regulations and prevention of non-compliance within their organisations. The standard will also directly affect those to whom professional accountants will raise NOCLAR, including management, board of directors, those involved with governance, regulators and other public authorities. That is, to be effective, the standard needs to create a link in the financial reporting supply chain in preventing and raising potential acts of non-compliance.
In fact, this will be the first time accountants will be permitted to set aside the duty of confidentiality under the Code of Ethics in order to disclose NOCLAR to appropriate public authorities in certain circumstances.
Why is NOCLAR important?
The idea is NOCLAR will encourage greater accountability among organisations, help to protect stakeholders and the general public from substantial harm resulting from the violation of laws and regulations, and strengthen the reputation of the profession. NOCLAR also positions the accounting profession to play a much greater role in the global fight against breaches of legislation and regulations, including financial fraud, money laundering and corruption. In a world where cybercrime is also on the rise, it is important accountants realise the significant role they can and should play. Overall, it is hoped NOCLAR will lead to more trustworthy organisations and a healthier global financial system.
How is NOCLAR to be implemented?
The Institute of Public Accountants believes guidance will be needed as to how to implement and apply NOCLAR, how to interpret what constitutes non-compliance, the public interest and other concepts and to clarify the legal, regulatory and ethical responsibilities regarding how to respond to the standard. There will be much ambiguity and greyness in how NOCLAR is to be interpreted and applied, not just across Australia, but also consistently across the world. It is also likely stronger whistleblower protections will be needed in Australia, which is currently under way.
