Accountants’ dilemma- Confidentiality vs Disclosure of Non compliance



Accountants to become whistle blowers or lead the anti corruption fight in organizations require certain prerequisites. Like in the mafia type movies, Accountants will become the snitch that a mafia goes after and eliminates to keep their secret, if an enabling environment is not created. Therefore, it is a prerequisite to strengthen legislation and timely action which should increase calls for prosecution of company executives and public officials, in addition to actions against companies for corporate misdemeanours. A couple of examples where countries have laws to fight corruption are the UK Bribery Act and the Foreign Corrupt Practices Act in the USA. Many developed countries also have whistleblower protection laws to encourage disclosure.

IFAC in 2017 introduced a new international ethics standard, Responding to Non-Compliance with Laws and Regulations (NOCLAR). It sets out a framework to guide professional accountants in what actions to take in the public interest when they become aware of a potential illegal act, committed by a client or employer, including issues of fraud and bribery. Professional accounting bodies globally are currently reviewing how to incorporate NOCLAR into their Codes with additional guidance where appropriate. In brief, accountants will be required to disclose material non compliances to internal management and external regulators as defined in the standard.

For such procedures to be successful and to eliminate the risk of retaliation, companies and boards of directors should be legally held responsible to implement systems and procedures to promote an anti corruption culture. Such actions increase the pressure on the public and private sector company boards to mitigate fraud and corruption risks. In such a situation the accountants can be given the added burden of reporting on NOCLAR. Because under this process those in charge of Governing the Company who are responsible for preventing the non compliance have to first take corrective action based on the reporting. An interesting aspect would be how accountants will deal with tax evasion and will be required to prevent such behavior. For example, the UK is poised to introduce a new corporate offence of failure to prevent the criminal facilitation of tax evasion, under the proposed Criminal Finances Act. Thereby, the accountants will find it easy to comply with any disclosure requirements under NOCLAR.

According to the COSO Fraud Risk Management Guide, deterrence is achieved when an organisation implements a fraud risk management process that:
* Establishes a visible and rigorous fraud governance process
* Creates a transparent and sound anti-fraud culture
* Includes a thorough fraud risk assessment periodically
* Designs, implements and maintains preventive and detective fraud control processes and procedures
* Takes swift action in response to allegations of fraud, including, where appropriate, actions against those involved in wrongdoing
A similar anti corruption guide will be required to achieve deterrence of corrupt practices. Because the frontline in fighting fraud and corruption lies with employees. They are the first line of defense. The company should create the right culture for ethical behavior by recruiting and promoting appropriate people. If such an environment is created there’s no doubt accountants will take responsibility for disclosing non compliance with laws and regulations.


About surenraj

“Views expressed are my own”
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