Guidance on NOCLAR

The ICAEW Code contains two detailed sections on NOCLAR: 

• Section 260 for professional accountants in business, and
• Section 360 for professional accountants in practice.

These sections set out a detailed framework to guide professional accountants on what actions to take when they become aware of a potential illegal act committed by a client or employer.

Members should note that any disclosure made under the NOCLAR provisions must meet the public interest test, or a legal or regulatory obligation to disclose.

ICAEW also has separate guidance on Defaults or Unlawful Acts which applies to a much broader range of circumstances than the NOCLAR provisions. This guidance will continue to apply.

Objectives of NOCLAR

The key objectives for a professional accountant under NOCLAR are:

• to comply with the principles of integrity and professional behaviour;
• to alert management where appropriate so that they can deal with the consequences of the non-compliance; or deter the non-compliance if it hasn’t yet happened; and 
• to take such further action as appropriate in the public interest. 

The kinds of laws and regulations covered

NOCLAR applies to laws and regulations that have a direct effect on material figures in the financial statements, and other laws and regulations that may be fundamental to an entity’s business and operations. Clearly inconsequential matters and misconduct of a personal nature are excluded.

Examples of laws and regulations that would be covered are in the areas of:

• bribery and corruption;
• fraud (including false accounting, falsification of accounting records);
• insider dealing;
• money laundering and terrorist financing;
• financial products and services;
• data protection;
• tax evasion;
• environmental protection; and
• public health and safety.

The appropriate authority to report breaches

The appropriate authority will depend on the nature of the matter. For example, the appropriate authority might be a securities regulator in the case of fraudulent financial reporting or an environmental protection agency in the case of a breach of environmental laws and regulations.

Whose breaches are covered?

NOCLAR applies to acts by the following parties:

• a client;
• those charged with governance of a client;
• management of a client;
• other individuals working for or under the direction of a client;
• the accountant’s employing organisation;
• those charged with governance of the employing organisation;
• management of the employing organisation; and
• other employees of the employing organisation.

Who has to comply with NOCLAR?

NOCLAR applies to all professional accountants, but the framework that the professional accountant must follow depends on which of the following categories they fall within:

• auditors;
• other professional accountants in public practice;
• professional accountants in business, or other non-accountancy organisations; and
• professional accountants in business who are in senior roles – directors, officers, or senior employees.

Professional accountants in public practice must also comply with NOCLAR in the context of their employment with their firm, so if they encounter NOCLAR by their employing firm, they should refer to the sections for professional accountants in business.

Those individuals with whom professional accountants may raise NOCLAR matters will also be directly affected, including those in management positions, or on boards of directors, and regulators or other public authorities. While non-members are not within the scope of the NOCLAR provisions, it may be helpful for these wider stakeholders to be aware of the existence of the provisions.

What should a professional accountant do?

If a professional accountant becomes aware of actual or suspected NOCLAR, they must first establish whether any legal or regulatory obligations are triggered, such as making a Suspicious Activity Report for suspicions of money laundering.  The accountant must also consider any legal prohibitions on making any further disclosure, such as the laws on tipping off which prohibit disclosure of the fact that a SAR has been made, if such disclosure could prejudice an investigation.

Once legal and regulatory responsibilities have been considered, the accountant should take the following steps based on their role:

Disclosure without reporting to management

NOCLAR permits a professional accountant (whether in practice or business) to make disclosure to the appropriate authority without first reporting the matter to management, but only under exceptional circumstances. Typically there must be reason to believe that there will be an imminent breach of law or regulation that would cause substantial harm to stakeholders

Documentation

Auditors who identify NOCLAR must document how management or those charged with governance have responded to the matter. Auditors must also document the course of action taken, the judgements made, and the decisions taken. Auditors must also document how their responsibility to act in the public interest has been met.

While documentation is not a requirement for other professional accountants dealing with their responsibilities under NOCLAR, it is encouraged that they document the matter, the results of discussions with management, the courses of action they have considered, any professional or legal advice they have taken, and how they are satisfied they have fulfilled their responsibilities.