NOCLAR: Revisions to the AICPA Code of Professional Conduct.

• Author: DeBoer, Doug

the AICPA Professional Ethics Executive Committee (PEEC) adopted revisions to the AICPA Code of Professional Conduct with regards to members' responsibilities when they encounter noncompliance with laws and regulations (NOCLAR).

As part of an effort to converge the AICPA's Code of Professional Conduct with international standards, PEEC adopted two new interpretations of the "Integrity and Objectivity Rule." Each of the interpretations is titled "Responding to Noncompliance with Laws and Regulations," with one interpretation applicable to members in public practice (Sec. 1.180.010) and one applicable to members in business (Sec. 2.180.010).

NOCLAR for Members in Public Practice

For members in public practice, NOCLAR is defined as "... acts of omission or commission, intentional or unintentional, that are contrary to the prevailing laws or regulations and are committed by a client or by those charged with governance, by management, or by other individuals working for or under the direction of a client."

When a member is providing financial statement audit or review services and encounters or is made aware of actual or suspected NOCLAR, the interpretation requires the member to do the following:

1. Gain an understanding of the matter: Note that the interpretation does not require the member to have expertise in legal or regulatory matters, but rather to apply their knowledge and professional judgment to the situation.

2. Discuss the matter with management and, when appropriate, those charged with governance: The discussion should include advising the client to rectify or mitigate the consequences of the noncompliance, stop the commission of the noncompliance if it has not yet occurred, and disclose that matter to authorities where required or considered necessary.

3. Based on the client's response, determine whether to withdraw from the engagement and the professional relationship: This determination will depend on the nature of the NOCLAR as well as the member's evaluation of management's integrity based on the NOCLAR and the client's response to it.

4. Document the matter: The documentation should include a description of the matter, results of discussions with the client, the client's response to the matter, and the judgments and courses of action that the member took.

   The responsibilities for members in public practice providing services other than financial statement audits or reviews are substantially similar, with the exception that...