The-Accountant-Jul-Aug-2017

Business practice and development
Professional Accountants and
Ethics Code
As accountants we are entrusted
with a public interest role. However,
in pursuit of our duty, we should
refrain and weigh situations
carefully to ensure that we do
not harm the same public we
want to protect if our generosity
with findings leads to unintended
consequences. Section 140.1(a) of the
International Ethics Standards Board
for Accountants (IESBA) Code of Ethics
for professional accountants requires
professional accountants to refrain from
disclosing confidential client information
without proper and specific authority
or unless there is a legal or professional
right or duty to disclose. Section 140.1
(b) refrains professional accountants from
using acquired client information for their
personal advantage or the advantage of
third parties.
Professional Accountants and
NOCLAR
In the day to day interaction with
clients’ information systems and records,
accountants in practice or in business
may come across apparent instances
of questionable behavior within an
accounting context. When such an instance
arises, accountants talk to their client
or employer to enable action to rectify,
mediate, or mitigate the consequence of
NOCLAR and to prevent commission
where NOCLAR has not yet occurred.
Adherence to strict client
confidentiality makes us trusted confidants
to our clients, and clients reveal a lot of
vital information regarding themselves and
their businesses. Without strict adherence
to confidentiality, the very clients that
the accountants are seeking to help may
keep to themselves vital information,
thus limiting the scope of accountants’
and consequently their ability to provide
clients with informed and high-quality
professional services. The ISA currently
require auditors to determine whether
they have a “responsibility to report an
identified or suspected non-compliance to
parties outside the entity.”
The guidance in ISA 250: Consideration
of Laws and Regulations in an Audit of
Financial Statements – Paragraph A19
states that: “The auditor’s professional
duty to maintain the confidentiality of
client information may preclude reporting
The lack of certainty
on what professional
accountants may
find in the course
of their work may
cause clients to limit
the information they
provide.
identified or suspected non-compliance
with laws and regulations to a party
outside the entity. However, the auditor’s
legal responsibilities vary by jurisdiction
and, in certain circumstances; the duty
of confidentiality may be overridden by
statute, the law or courts of law. In some
jurisdictions, the auditor of a financial
institution has a statutory duty to report
the occurrence, or suspected occurrence, of
non-compliance with laws and regulations
to supervisory authorities. Also, in some
jurisdictions, the auditor has a duty to
report misstatements to authorities in
those cases where management and, where
applicable, those charged with governance
fail to take corrective action. The auditor
may consider it appropriate to obtain legal
advice to determine the appropriate course
of action.” and Paragraph A20 “A public
sector auditor may be obliged to report
on instances of non-compliance to the
legislature or other governing body or to
report them in the auditor’s report.”
As accountants in private practice and
business, we know too well that client
confidentiality is paramount and any
deviation would be injurious to you and
to the profession. Not forgetting the real
risk of spending more of your precious
time solving a legal problem as opposed to
solving accounting problems.
Public Interest versus Ethical
Duty
Professional accountants have both
an ethical duty and a public interest
mandate to address instances, or suspected
instances, of NOCLAR. The IESBA
has taken a different stance from certain
other international standard setters in
this context: while other standard setters
generally use an approach whereby
compliance with the standard means that
the professional accountant is deemed
to have acted in the public interest, the
IESBA is proposing the introduction
of a “public interest test” in the
Code. In practice, this approach is
likely to be problematic as there is no
common understanding as to what
constitutes the public interest.
The IESBA decided motto
includes a direct requirement within
the Code for professional accountants
to break client confidentiality and report
certain suspected and identified instances
of illegal acts. Legal opinion obtained by
the IESBA stressed the concerns raised
by many professional accountants, and,
in particular, highlighted “significant
unintended consequences of the
professional accountant becoming a quasiinvestigator
or prosecutor in relation to
NOCLAR.”
Public Expectations
The existing expectations’ gap will increase,
as the public will expect professional
accountants to disclose matters beyond
current practice and beyond national
legislation, unless that legislation upholds
client confidentiality. On the other hand,
the uncertainty surrounding exactly when
professional accountants may break client
confidentiality may prove to be ultimately
not in the public interest, and may work
against professional accountants.
The lack of certainty on what
professional accountants may find in the
course of their work may cause clients to
limit the information they provide. For
auditors, this could have serious unintended
consequences in terms of quality of work.
In addition, this uncertainty may drive
clients away and lead to lack of full
cooperation and complete information;
such unintended consequences are not in
the public interest.
Parting shot
Illegal acts by a professional accountant’s
clients or employers pose ethical-sociallegal
issues and consequently, professional
accountants may not turn a blind eye when
they come across instances of NOCLAR
in their professional work. However, as we
balance ethics, commercial pressures and
legal requirements, before you spill the
beans, make sure you have water tight facts
and most importantly seek legal advice.
JULY - AUGUST 2017 9