Noncompliance
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Where Are We With Client Noncompliance Issues?

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Noncompliance with laws and regulations (NOCLAR) pertains to suspected or identified noncompliance, including fraud, by CPAs. How this knowledge or suspicion impacts a current or successor CPA firm within the constraints of the AICPA Code of Professional Conduct confidentiality guidance of ET 1.700, as well as a range of nuanced state laws and regulations pertaining to client/employer confidentiality, has been at the core of the profession’s years-long wrestling with NOCLAR issues.

Jul 15th 2021
JAMES J. NEWHARD, CPA
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The AICPA’s Professional Ethics Executive Committee (PEEC) and Auditing Standards Board (ASB) have two different goals in their proposals on noncompliance with laws and regulations (NOCLAR), and the implications will affect all CPAs, particularly those who are in public practice and provide attest services.

PEEC Proposal

Having worked on its proposal since 2017 as part of international convergence efforts, PEEC is proposing two interpretations: one to respond to the needs of AICPA members in public practice (target ET Section 1.170.010) and another for members in business (target ET Section 2.170.010). The proposals are generally as follows:

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  • Make necessary modifications that will enhance clarity through proposed NOCLAR interpretations so as to be relevant to U.S. members of the AICPA.
  • Better serve the public interest with the inclusion of “robust guidance” to set forth what a member’s responsibilities are when encountering a NOCLAR situation at a client or where they are employed. (The AICPA Code of Professional Conduct does not currently provide specific guidance for members who encounter or suspect NOCLAR.)
  • Establish a general objective for members who encounter a NOCLAR to “alert the appropriate parties to enable a client’s or employing organization’s management and those charged with governance to rectify the NOCLAR, mitigate the effects of the NOCLAR, or deter the commission of the NOCLAR.”

A NOCLAR can be a commission or an omission, either intentional or unintentional, that is contrary to prevailing laws or regulations and that is committed (or suspected to have been committed) by a client, an employer, or those charged with governance of a client or an employer.

Because of this framework, PEEC bifurcated the guidance for members in public practice, providing separate requirements for members providing financial statement attest services and for members providing services other than financial statement attest services (nonattest services, except those excluded by specific carve-out).

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