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Non-compliance with Laws and Regulations (NOCLAR) – Whose problem is it?

Non-compliance with Laws and Regulations (NOCLAR) – Whose problem is it?

25 May 2018

What is NOCLAR?

The NOCLAR standard was recently released by the International Ethics Board for Accountants (IESBA).

NOCLAR is defined as any act or suspected act of omission or commission, intentional or unintentional, committed by a client or the professional accountant’s employing organisation, or by those charged with governance (TCWG), by management or by other individuals working for or under the direction of a client or employing organisation which is contrary to the prevailing laws or regulations.

This standard sets out a framework to guide auditors and other 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.

When did these NOCLAR provisions become effective?

The new provisions as per the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) became effective from 15 July 2017.

These changes have also been adopted by various professional bodies in South Africa, including the South African Institute of Chartered Accountants (SAICA), South African Institute of Professional Accountants (SAIPA) and the Independent Regulatory Board for Auditors (IRBA). Their revised Codes now also sets out the professional accountants’ responsibilities when encountering or becoming aware of NOCLAR and guide professional accountants in assessing the implications of the matter and the possible courses of action when responding to it.

Whose duty is it to report non-compliance with laws and regulations?

The IESBA Code contains sections that apply to all accountants, not only auditors or even those that are employed by audit firms, referring to these accountants as “professional accountants”.

The following categories of professional accountants are included:

  • Auditors
  • Other professional accountants in public practice
  • Professional accountants in business that are in senior positions
  • Other professional accountants in business

This would cover SAICA, ACCA, SAIPA and IRBA members and any other members of professional bodies that have adopted the IESBA Code.

Which non-compliance needs to be reported?

Consideration must be given to relevant laws and regulations which include those that have a link to the accountant’s professional training and expertise, specifically those that have a direct effect on the financial statements and those that may be fundamental to the operations or may cause material penalties.  Inconsequential matters and personal misconduct that is not related to the business are not included.

What process must be followed when reporting the NOCLAR?

  • Obtain a thorough understanding of the matter.
  • Discuss it with the appropriate level of management, or directors if necessary, to enable them to take appropriate action.

The principle is and has always been that it is the responsibility of management, with the oversight of directors (those charged with governance) to ensure compliance with relevant laws and regulations.

The IESBA Code now also expects the professional accountant to determine if, after reporting as explained in the previous paragraph, the public interest demands any further action.

Depending on the professional accountant’s assessment of the adequacy of the response by management or directors after reporting to them, further action may include:

  • Disclosing the matter to an appropriate authority (even if not required by law),
  • Resigning or otherwise withdrawing from the relationship, and
  • Informing a successor accountant accordingly.

These steps are obviously not taken lightly and will depend on many factors, including evidence of harm to any stakeholders and other legislation that may even prohibit disclosure. The professional accountant’s confidentiality requirement obviously plays a role, but the IESBA Code makes it clear that confidentiality may be overridden in cases where it is determined that disclosure is appropriate.

What impact will these new NOCLAR provisions have?

The proactive role of professional accountants in relation to NOCLAR can lead to an earlier response by management or those charged with governance, thereby mitigating any adverse consequences for stakeholders, or deterring potential NOCLAR for the greater benefit of business (and society / public interest). Furthermore, there could be timelier intervention from public authorities on reports of potential NOCLAR from professional accountants in appropriate circumstances, which is in the interest of affected stakeholders, as well as the general public.

These new ethics requirements position the accountancy profession to play a greater role in the fight against NOCLAR, such as financial fraud, money laundering, and corruption.


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