Understanding the New International Ethics Standards

Published date01 September 2017
AuthorSteven A. Harrast,Amy Swaney
Date01 September 2017
© 2017 Wiley Periodicals, Inc.
Published online in Wiley Online Library (wileyonlinelibrary.com).
DOI 10.1002/jcaf.22294
Understanding the New
International Ethics Standards
Steven A. Harrast and Amy Swaney
On July 14, 2016,
the International
Ethics Standards
Board for Accoun-
tants (IESBA) issued
its final guidance
regarding material
noncompliance with
laws and regula-
tions (IESBA, 2016).
Why should U.S.
accountants take
notice? Because
many U.S.-based
accounting profes-
sionals will be subject
to the new IESBA
standard. While the
chances of a U.S.-
based accountant
being subject to an
international set of
standards may seem
remote, over 100
countries (including
Canada and Mexico) have
adopted IESBA ethical stan-
dards (Allen & Bunting,
2008). Likewise, subsidiaries
of multinationals domiciled in
jurisdictions that have adopted
IESBA standards are often
subject to the same standards.
In addition, international net-
works often agree to perform
services under IESBA stan-
dards. With so many entities
relying on IESBA ethical stan-
dards, this is probably a good
time to learn what is inside the
black box.
In this article
the IESBA ethical
standards on Non-
compliance with
Laws and Regula-
tions (NOCLAR) are
compared to PCAOB
AS 2405, Illegal Acts
by Clients (Public
Company Account-
ing Oversight Board
[PCAOB], 2015)
since they apply
to similar subject
matter. While both
standards provide
some similar guid-
ance, there are also
significant differ-
ences in auditor
responsibilities under
the two standards.
We identify three
specific differences in
the standards, relat-
ing to (a) the scope
of the standards, (b) the initial
investigation process, and
(c) the recommendation on
whistleblowing (if further
actions are necessary.)
With many accountants
performing work as part of
professional networks, auditing
The new International Ethics Standards Board for
Accountants (IESBA) standard on noncompliance
with laws and regulations (NOCLAR) has been
adopted by over 100 countries, including Canada
and Mexico and is well on the way to becoming
the global standard for accounting ethics. U.S.
accounting professionals may become subject
to the IESBA standard by working in a country
or jurisdiction that has adopted the standard,
working as part of a professional network that
has adopted the standard, or performing services
for a company that is part of a group governed
by IESBA standards. While the IESBA standard
resembles U.S. standards, it is more inclusive. U.S.
standards exclude from consideration illegal acts
(similar to NOCLAR) that do not have a material
effect on the financial statements, while IESBA
standards includes NOCLAR even when not mate-
rial. Accounting professionals should recognize
that they may have broader responsibilities for
resolving NOCLAR when working under IESBA
standards. © 2017 Wiley Periodicals, Inc.
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