Responding to Noclar and the professional accountant

Dr. Conchita L. ManabatLike any other professions, the accountancy profession has its Code of Ethics as set by the International Ethics Standards Board for Accountants (IESBA). The IESBA (or Ethics Board) is an independent standard-setting board that continuously develops and issues high-quality ethical standards and other pronouncements for professional accountants worldwide.

A professional accountant is expected to comply with five fundamental principles:

  • Integrity
  • Objectivity
  • Professional competence and due care
  • Confidentiality
  • Professional behavior

The development of international ethical standards is a tedious process. The standard-setting body comes up with a work plan that includes all projects lined up for the period. A technical team undertakes the necessary research in order to generate an initial draft of a standard. Then, there is the long consultative process that may lead to more than one exposure draft. A case in point is a recent pronouncement on Responding to Non-compliance with Laws and Regulations, also known as Noclar. It went through two exposure drafts and three global roundtables (Washington, D.C., Brussels and Hong Kong) to reach out to all conceivable stakeholders. It took about six years before it was approved by the Public Interest Oversight Board (PIOB) during its 47th meeting on July 1. The new pronouncement will take effect on July 15, 2017.

This new 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.

Essentially, it is incumbent on the professional accountant after knowing the noncompliance or the suspected noncompliance with laws and regulations, to uphold the fundamental principles of integrity and professional behavior by informing management, or when appropriate those charged with governance and to take such subsequent action as may be deemed appropriate in the public interest. By disclosing such information, the concerned party will be able to rectify, remediate or mitigate the consequences of the identified or suspected noncompliance, or it may deter the commission of non-compliance if it has
not occurred.

The IESBA chairman, Dr. Stavros Thomadakis, said, “This standard not only raises the ethical bar for the global accountancy profession but also provides an opportunity for it to demonstrate its unflagging commitment to act in the public interest. The standard reinforces the public interest role that professional accountants play in stimulating more trustworthy and accountable organizations, and in helping to protect stakeholders and the general public from substantial harm that may stem from breaches of laws and regulations.”

The Philippines adopts the international standards of accounting, auditing and assurance, and ethics for accountants. Thus, it is expected that the regulators will roll out in the country this new pronouncement from the international standard setter.

Dr. Conchita L. Manabat is the president of Development Center for Finance. She is a past chairman of the International Association of Financial Executives Institutes, where she now serves as chairman of its Advisory Council. A certified public accountant, she was once the chairman of the Board of Accountancy, the national regulator of the accounting profession.

This column accepts contributions from accountants, especially articles that are of interest to the accountancy profession, in particular, and to the business community, in general.  These can be e-mailed to



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