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State Board Report

July 2017

How CPAs should respond to their client’s non-compliance with laws and regulations (NOCLAR) has come under consideration with the AICPA’s Professional Ethics Executive Committee’s (PEEC) release of its proposed interpretation and NASBA’s May 9, 2017 comment letter on that proposal. While the International Ethics Standards Board for Accountants (IESBA) has issued a standard that will go into effect on July 15, 2017 which “provides a pathway to disclosure of suspected NOCLAR to an appropriate authority in the appropriate circumstances, without the ethical duty of confidentiality standing in the way.” The PEEC interpretation does not provide such a pathway. The IESBA standard also explains that in such extreme circumstances, when the auditor has resigned based on the situation and is approached by a successor auditor, the resigning auditor “is required to communicate information concerning the identified or suspected NOCLAR to the proposed successor without needing to obtain client consent.” PEEC’s interpretation does not include that guidance.

PEEC’s proposal was outlined for the Western Regional Meeting by AICPA Senior Director for Professional Ethics Lisa Snyder and for the Eastern Regional by AICPA Associate Director for Professional Ethics Jason Evans. NASBA’s comments were summarized by NASBA Ethics Committee Chair Janice Gray. Ms. Gray explained, “CPAs need to know that there is protection in the law that would be afforded to them. We do not want them thrown under the bus, but we do not want them to be part of causing irreparable harm.” The NASBA letter recommends that the issue be taken up by the Uniform Accountancy Act for further discussion, as the UAA Committee had discussed possibly proposing changes to Section 18 in light of NOCLAR in 2012, and but then decided to table such discussions until the international body had concluded their deliberations.

Discussions during the Regional breakout sessions at each of the Regional Meetings showed many Boards were unfamiliar with this topic and more information is required.