The professional responsibility of accountants as re-defined by the inclusion of the NOCLAR standard in the Code of Ethics

We explore how a recent major change to the International Ethics Standards Board for Accountants (IESBA) Code of Ethics has redefined professional responsibility of professional accountants throughout the globe. Already adopted by the International Federation of Accountants (IFAC) in 2017, a new revision to the Code entitled NOCLAR is currently being rolled out to its approximately 134-member countries’ Code of Ethics. NOCLAR, an acronym for non-compliance with laws and regulations, identifies the actions to be taken by professional accountants when they suspect fraud or a breach of a law by a client or an employer, thereby allowing them to breach the principle of confidentiality (IESBA, 2012). While the previous Code of Ethics was confusing regarding professional accountants’ responsibilities to act when faced with fraud or illegal acts, the NOCLAR standard explicitly requires professional accountants to discuss suspicions with their employers and/or clients and then grants professional accountants the privilege to report fraud to an external authority if they determine that it has not been appropriately resolved. Furthermore, the NOCLAR standard differentiates the actions to be taken by professional accountants when faced with non-compliance with laws and regulations, based upon their role with the firm. In this chapter, we discuss the original Code of Ethics and the challenges associated with the original Code particularly with respect to the principle of confidentiality for those encountering fraud and illegal acts. Next, we present and discuss the NOCLAR change to the Code of Ethics through a Hohfeldian (1919) legal analysis. Finally, we present the implications of this change for and challenges still to be faced by the accounting profession after the adoption of the NOCLAR standard.