10th October, 2016

IAASB Amends Standards to Enhance Auditor Focus on Non-Compliance with Laws and Regulations

ISA 250 (Revised), Consideration of Laws and Regulations in an Audit of Financial Statements

In July 2016, the International Ethics Standards Board for Accountants (IESBA) introduced new requirements to the Code of Ethics for Professional Accountants (the IESBA Code) addressing non-compliance with laws and regulations (NOCLAR), which becomes effective on July 15, 2017.

In response to the new requirements addressing NOCLAR in the IESBA Code, the IAASB has made limited amendments to ISA 250 (Revised) and other International Standards. These amendments address actual or perceived inconsistencies of the scope of laws and regulations and approach to identifying and dealing with NOCLAR. This enables the IAASB’s International Standards to continue to be applied effectively together with the IESBA Code and clarifies and emphasizes key aspects of the revised IESBA Code in the IAASB’s International Standards. The IAASB’s International Standards comprise the International Standards on Auditing, the International Standards on Review Engagements, the International Standards on Assurance Engagements, and the International Standards on Related Services.

ISA 250 (Revised) becomes effective for audits of financial statements for periods beginning on or after December 15, 2017, with a similar effective date for standards for other services.

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Responding to Non-Compliance with Laws and Regulations

This 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, known as non-compliance with laws and regulations, or NOCLAR, committed by a client or employer.

The standard applies to all categories of professional accountants, including auditors, other professional accountants in public practice, and professional accountants in organizations, including those in businesses, government, education, and the not-for-profit sector. It addresses breaches of laws and regulations that deal with matters such as fraud, corruption and bribery, money laundering, tax payments, financial products and services, environmental protection, and public health and safety.

Among other matters, the new standard provides a clear pathway for auditors and other professional accountants to disclose potential non-compliance situations to appropriate public authorities in certain situations without being constrained by the ethical duty of confidentiality. It also places renewed emphasis on the role of senior-level accountants in business in promoting a culture of compliance with laws and regulations and prevention of non-compliance within their organizations.

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Sources: International Federation of Accountants - ISA 250 (Revised), Consideration of Laws and Regulations in an Audit of Financial Statements and Responding to Non-Compliance with Laws and Regulations