Non-compliance with laws and regulations – NOCLAR

In 2017, the International Ethics Standards Board for Accountants (IESBA) updated the rule that dictates how accountants can respond to a client’s non-compliance with laws and regulations (NOCLAR).

For the professional accountants’ context, NOCLAR is an action that violates a law or regulation that has a direct impact on financial statements or violates laws which address compliance matters.

Non-compliance can be defined as:

Any act of omission or commission by the entity, either intentional or unintentional, which are contrary to the prevailing laws or regulations.

Such acts include transactions entered into by, or in the name of, the entity, or on its behalf, by those charged with governance, management or employees.

Non-compliance does not include personal misconduct (unrelated to the business activities of the entity) by those charged with governance, management or employees of the entity.’ 

NOCLAR is significant in that professionals operating in the industry have strict confidentiality requirements with minimal exception to when they can divulge client or employer information without a client’s consent.

The NOCLAR standard is a response framework for an accountant’s decision-making process, when deciding if it’s necessary to divulge information to an outside body.

The Ethics Code of the International Ethics Standards Board for Accountants (IESBA) 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”. In a South African context, this would cover CA(SA)’s, ACCA’s (Association of Chartered Certified Accountants) and members of the South African Institute of Professional Accountants (SAIPA).

The NOCLAR provisions are based on a comprehensive framework that differentiates between three categories of professional accountants:


Other professional accountants in public practice

Professional accountants in business that are in senior positions

Other professional accountants in business

From the IESBA’s Principles and Conceptual framework, excerpts to note:

“A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest. A professional accountant’s responsibility is not exclusively to satisfy the needs of an individual client or employing organization. Therefore, the Code contains requirements and application material to enable professional accountants to meet their responsibility to act in the public interest.”

“The principle of professional behaviour requires a professional accountant to comply with relevant laws and regulations. Some jurisdictions might have provisions that differ from or go beyond those set out in the Code. Accountants in those jurisdictions need to be aware of those differences and comply with the more stringent provisions unless prohibited by law or regulation.”

In understanding the above excerpts, the reader must also be made aware of the following principles.

There are five fundamental principles of ethics for professional accountants:

(a) Integrity – to be straightforward and honest in all professional and business relationships.

(b) Objectivity – not to compromise professional or business judgments because of bias, conflict of interest or undue influence of others.

(c) Professional Competence and Due Care – to: (i) Attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organization receives competent professional service, based on current technical and professional standards and relevant legislation; and(ii) Act diligently and in accordance with applicable technical and professional standards.

(d) Confidentiality – to respect the confidentiality of information acquired as a result of professional and business relationships.

(e) Professional Behaviour – to comply with relevant laws and regulations and avoid any conduct that the professional accountant knows or should know might discredit the profession.

In December 2016, a section was added to the Code in an effort to assist professional accountants in dealing with Non-Compliance with Laws And Regulations (known as the NOCLAR provisions).

The Code may be found on this link:

Additionally, two Q&A summaries have been compiled by the IESBA and can be found on

These Q&A documents cover section 225 and 360 of the Code and each list the requirements for professional accountants’ compliance with the Code.

Sections 225.6 and 360.6 provide examples of the types of laws and regulations which the Code addresses. These will be dealt with in subsequent articles.

When should a professional accountant (PA) override the duty of confidentiality and disclose NOCLAR to an appropriate authority? This is the main contentious issue dealt with by all professional accountants.

Depending on the 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 accountant’s confidentiality requirement obviously plays a role, but the code makes it clear that confidentiality may be overridden in cases where it is determined that disclosure is appropriate.

What must be done by the professional accountant (PA) when a non-compliance matter arises?

Once the PA become aware of the NOCLAR matter they must report it to their direct superior, and if they are the most senior person they have to consult with the board of directors or anyone else involved in corporate governance in the affected organization.

The responsible people must be allowed time to rectify, implement remedial action or mitigate the consequences of the identified or suspected non-compliance as long as there is no urgency in the matter.

SAIPA advises accountants to follow the internal route first.

If insufficient action was taken by the responsible person(s) to rectify the non-compliance, the PA can approach their professional bodies. Ultimately, if nothing has been resolved the PA should consult legal counsel.

The Code acknowledges that a senior professional accountant is expected to apply knowledge, professional judgement, and expertise. However, the PA is not expected to have a level of understanding of laws and regulations beyond that which is required for the professional accountant’s role within the employing organisation.

It is critical for the professional accountant to meticulously document what has been done to address the non-compliance.

The implementation of NOCLAR requires that professional accountants comply with the IESBA’s Code at all times and may not turn a blind eye to non-compliance with laws and regulations. Clients must understand and accept their own non-compliance can and may be reported to external authorities if and when required.

Author Craig Tonkin

Leave a Reply

Your email address will not be published. Required fields are marked *