NOCLAR (Non-compliance with Laws and Regulations)

Responding to Non-compliance with Laws and Regulations (NOCLAR) is an international ethics standard issued by International Ethics Standards Board for Accountants (IESBA) of IFAC for auditors and other professional accountants.

NOCLAR standard is effective from July 15, 2017 as per IESBA issued standard.

What is NOCLAR?

NOCLAR is defined as any act of omission or commission, intentional or unintentional, committed by a client or employer, including by management or by others working for or under the direction of the client or employer, which is contrary to prevailing laws or regulations.

It sets out a first-of-its-kind framework to guide Professional Accountants (PAs) which includes PAs in Public Practice and PAs in Business in what actions to take in the public interest when they become aware of a potential illegal act committed by a client or employer. This is the first time PAs have been permitted to set aside the duty of confidentiality in order to disclose NOCLAR to the appropriate public authorities where there is a strong public interest reason.

It is important to note that it is, and remains, the responsibility of the audit client’s or the employing organisation’s management, with the oversight of those charged with governance (TCWG), to ensure compliance with relevant laws and regulations. The PA’s objective is to alert management and, where applicable, TCWG about the matter to seek to enable them to take appropriate action to rectify, remediate or mitigate the consequences of the identified or suspected non-compliance, or deter the commission of the non-compliance where it has not yet occurred. PAs is not required to disclose NOCLAR to an appropriate authority if doing so would be contrary to law or regulation.

Disclosing a matter to an appropriate authority would be at the end stage of the process in relation to serious identified or suspected NOCLAR, after consideration of a range of factors, including the appropriateness of the response of management and, where applicable, TCWG.

If PA decides that disclosure of NOCLAR to an appropriate authority is the right course of action in the circumstances, then such a disclosure will not be considered a breach of confidentiality subject to the condition that he/she act in good faith and exercise caution.

Amendments in other ISAs due to NOCLAR

In response to NOCLAR requirements in the IESBA Code, the International Auditing and Assurance Standards Board (IAASB) has made limited amendments to ISA 250 (Revised), ‘Consideration of Laws and Regulations in an Audit of Financial Statements’ to align it with revised IESBA Code.

These amendments particularly include auditor’s determination of whether to report identified or suspected NOCLAR to an appropriate authority outside the entity, auditor’s duty of confidentiality, highlights auditor’s additional responsibilities under law & regulation or relevant ethical requirements to enhance the consideration of the implications of NOCLAR on the audit.

With the revision of ISA 250, certain conforming amendments have been made in different ISAs including ISA 210, ‘Agreeing the Terms of Audit Engagements’, ISA 240, ‘Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements’, ISA 220, ‘Quality Control for an Audit of Financial Statements’, ISAE 3000 (Revised), ‘Assurance Engagements Other than Audits or Reviews of Historical Financial Information’, ISRS 4410 (Revised), ‘Compilation Engagements’, ISRE 2400 (Revised), ‘Engagements to Review Historical Financial Statements’, ISAE 3402, ‘Assurance Reports on Controls at a Service Organization’.

ISA 250 (Revised) with other conforming amendments is effective for audits of financial statements for periods beginning on or after December 15, 2017.

More information on NOCLAR

The complete text of NOCLAR standard along with additional supportive material can be accessed from the IESBA website .

Steps taken by ICAP on NOCLAR adoption & awareness

  • NOCLAR adoption is under discussion of the Auditing Standards & Ethics Committee of ICAP.
  • Issuance of ICAP Circular No. 09 of 2017 dated July 07, 2017 for members’ comments on NOCLAR and its related challenges.
  • NOCLAR highlighted during the seminars on the Companies Act, 2017 (held by ICAP in all major cities).
  • Requested responses on NOCLAR adoption from members’ and practicing firms.
  • Coordinated with international accountancy institutes on NOCLAR adoption status in their jurisdictions
  • Consultative sessions for members’ awareness:

           Islamabad – March 19, 2018

           Karachi – April 03, 2018

           Lahore –  April 26, 2018

ICAP Pronouncements on NOCLAR

Brief on NOCLAR

Presentation on NOCLAR (March 2018 | Islamabad)

Presentation on NOCLAR (April 2018 | Karachi)