Australia: Non-Compliance with Laws and Regulations (NOCLAR)

I came across the acronym “NOCLAR” earlier last year in one of the conversation at the office of the Institute of Chartered Accountants Australia New Zealand (CAANZ) office in Sydney. I was wondering what it all means, surely as an accountant we are not “Nuclear Scientists” looking at world peace particularly at the time when much controversial news came from North Korea. 

What is NOCLAR? 

NOCLAR stands for Non-Compliance with Laws and Regulations. 

What does it mean? 

It is a set of standard pronouncements from the International Ethics Standards Board for Accountants “IESBA”. IESBA produces the entire Code of Ethics for Professional Accountants (the Code) and the Code is applicable to all professional accountants (PA) working in professional practices and also those who work in commerce, i.e. PA working for an enterprise in business. NOCLAR ethical standard applications therefore are not limited to just professional auditors. 

The Chairman of IESBA has an address to the public, which is available in YouTube, The primary aim for NOCLAR is to address the past corporate frauds that affected many innocent bystanders however the early detection of these frauds would have reduced the financial impacts of many innocent people who lost money from these frauds. 

Particular examples of NOCLAR aims are in the area of: 

• Tax frauds 

• Securities frauds 

• Money laundering frauds 

• Terrorist financing 

• Bribery and corruption 

• Non-compliance with environmental or health regulations, and so on 

NOCLAR is a standard that looks at very serious and harmful non-compliance such as: 

• Breaching legal and regulatory framework 

• Urgency and pervasiveness of the non-compliance matter 

• Creditable evidence of substantial harm to stakeholders 

There are three objectives the NOCLAR ethical standards try to achieve: 

• To enable PA to comply with their ethical duty to respond to NOCLAR in public interest 

• To stimulate actions that mitigate the effects of NOCLAR or better deter non-compliance altogether 

• To stimulate increased reporting of significant NOCLAR to appropriate public authorities. 

How do PA apply the NOCLAR ethical standards? 

This standard provides guidance for PA on how to respond to encountered cases of non-compliance during the accountant’s performance of his/her duties. 

The requirements of this standard graduates in accordance with the role of the PA, such as higher standards apply to auditors and senior members of management then diminishes in expectations for mid level of management and so forth. 

What is expected from PA? 

NOCLAR ethical standards establish a pathway enabling PA to disclose non-compliance to the relevant public authority. 

The pathway is the PA must: 

• First inform management or those charged with governance in the organisation where non-compliance is noted 

• When the management or those charged with governance do not respond effectively to the noncompliance matter, the professional is to disclose the matter to the relevant public authority. 

How does NOCLAR deal with the possible conflict with professional confidentiality?

NOCLAR ethical standards remove the principle of confidentiality for the PA when there is a strong public interest on the matter of non-compliance. 

What actions are expected from the relevant Governments in the implementation of NOCLAR? 

It is expected that Governments install financial stability in the sector that it is responsible for introducing strengthened legislation to address NOCLAR, legislation would include: 

• Providing safe harbours for “whistle-blowers” 

• Taking effective action on reports of NOCLAR from PA 

• Fighting non-compliance and mitigating negative effects from non-compliance 

What actually changed in the ethical Code to allow for NOCLAR?

The Code has added new sections to address PA’s responsibilities when they become aware of noncompliance or suspected non-compliance with laws and regulations committed by a client or employer. 

This NOCLAR ethical standard applies to all PA, its application does not limit to just professional auditors. These NOCLAR ethical standards for IESBA were finalised and effectively operational as from 15th July 2017. 

The International Auditing and Assurance Standards Board (IAASB), in response to IESBA releasing of the NOCLAR ethical standards, IAASB had amended its International Standard on Auditing (ISA) ISA250 to incorporate these ethical standards and was effective as from 15th December 2017. 

How does NOCLAR affect your local professional standards? 

Many Organisation for Economic Cooperation and Development (OECD) countries have adopted NOCLAR in their Auditing and Assurance Standards with the view of incorporating these ethical standards throughout all other professional standards.

China becoming a member of the IFAC is in progress at present. Once it became a member of IFAC then it is expected China will progressively adopt the International Accounting Standards which will include NOCLAR. 

Brazil however has resisted the adoption of NOCLAR due to its domestic environment and situation.

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