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State Board Report

September 2012

The International Ethics Standards Board for Accountants has issued a proposal which would require a professional accountant to determine whether certain suspected illegal acts are of such consequence that disclosure to an appropriate authority would be in the public interest. The August 2012 Exposure Draft on “Responding to a Suspected Illegal Act,” explains: “In making this determination, the professional accountant shall take into account whether a reasonable and informed third party, weighing all the specific facts and circumstances, would be likely to conclude that the suspected illegal act is of such consequence that disclosure would be in the public interest. The determination will require professional judgment and consideration of the nature and magnitude of the matter, including the number of people that could be affected by the suspected illegal act and the extent to which those people could be affected, irrespective of the size of the client or employing organization.” Proposed Sections 225 and 360 of the IESBA’s Code of Ethics for Professional Accountants describe the circumstances under which an accountant shall or “has a right to” override the fundamental principle of confidentiality and disclose a suspected illegal act by audit and non audit clients to an appropriate authority.

Section 225.14 does leave room for the accountant not to whistleblow if threatened with physical violence: “In exceptional circumstances, a professional accountant in public practice is not required, under this section, to disclose the suspected illegal act. Exceptional circumstances would arise where a reasonable and informed third party would conclude that the consequences of disclosure are so severe as to justify not complying with the requirement to disclose, for example, where there would be threats to the physical safety of the professional accountant or other individuals.”

IESBA Chair Jorgen Holmquist stated: “When the consequences of non-disclosure are potentially harmful to individuals or society, confidentiality must be overridden.” Several NASBA committees are studying the exposure draft and the IESBA is requesting comments on the proposal by December 15, 2012. The document can be found on and comments can also be submitted via that site.

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