Magazine article The CPA Journal

Disclosure of Noncompliance with Laws and Regulations: What Whistleblower Protections Exist for CPAs?

Magazine article The CPA Journal

Disclosure of Noncompliance with Laws and Regulations: What Whistleblower Protections Exist for CPAs?

Article excerpt

In 2016, the International Ethics Standards Board for Accountants (IESBA) adopted Responding to Noncompliance with Laws and Regulations, which is applicable to all accountants. The ethics interpretation requires accountants to respond to illegal acts they encounter in their work for an employer or client primarily through disclosure of the matter to appropriate parties. The IESBA sets standards in the International Code of Ethics for Professional Accountants (including International Independence Standards), and the International Federation of Accountants (IFAC) requires its member bodies, such as the AICPA, to adopt standards that are at least as stringent as IESBA standards.

In 2017, the AICPA's Professional Ethics Executive Committee (PEEC) proposed adding a noncompliance with laws and regulations (NOCLAR) interpretation to the AICPA Code of Professional Conduct (see Cathy Allen and Lisa Snyder, "AICPA Raises the Ethical Bar," The CPA Journal, March 2017, http://bit.ly/2NikD8P). While similar to the IESBA's interpretation, the PEEC's proposal departed from the standard because most state accountancy boards and the AICPA Code of Professional Conduct do not permit a CPA to disclose NOCLAR without client or employer consent. Certain comments on the pro-posal, which is still under consideration, prompted recommencement of an evaluation of the Uniform Accountancy Act (UAA). A joint task force of the AICPA and the National Association of State Boards of Accountancy (NASBA) was set up to deliberate whether the UAA should permit accountants (when warranted) to divulge illegal acts to an outside party without employer or client consent.

When an accountant takes all appropriate measures but the NOCLAR remains unresolved, the IESBA standard provides factors to consider when deciding whether to disclose noncompliance to an "appropriate authority" (e.g., a regulatory body). One of these factors is "whether there exists robust and credible protection [for the accountant] from civil, criminal or professional liability or retaliation afforded by legislation or regulation, such as under whistleblowing legislation or regulation." This factor encompasses two distinct sets of legal issues: 1) whether the CPA would be exposed to criminal, civil, or professional liability; and 2) whether there exist laws that would protect the CPA from retaliation, such as termination of employment or other adverse employment actions.

This article discusses the extent to which federal or state laws provide employment antiretaliation protections for a CPA who discloses NOCLAR to a governmental authority or regulator without an employer's consent. After discussing the legal protections, it provides case studies that highlight the complexities of whistleblower protection.

The IESBA NOCLAR Standard

Referred to as a "response framework," the NOCLAR standard requires an accountant to respond to NOCLAR when, in the performance of professional services for a client or employer, the accountant discovers or is informed of noncompliance (or suspected noncompliance). Importantly, the standard does not require an accountant to seek out NOCLAR, and the responsibility for resolving NOCLAR rests entirely with management. An accountant should first understand NOCLAR and then, if the matter falls within the scope of the standard, disclose it to the appropriate parties in the organization, going up the chain of command as needed (up to and including the company's governance body). NOCLAR is defined as an act of omission or commission (intentional or not) that is contrary to a prevailing law or regulation and that directly impacts the determination of material amounts and disclosures in the client's financial statements or that is fundamental to operating aspects of the client's business, to its ability to continue doing business, or to the avoidance of material penalties.

Situations that are included in the scope of the NOCLAR standard include-

* fraud, corruption, and bribery;

* money laundering;

* securities markets and trading;

* banking and other financial products and services;

* data protection;

* tax and pension liabilities and payments;

* environmental protection; and

* public health and safety. …

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