Understanding the New International Ethics Standards

• Published date: 01 September 2017
• Author: Steven A. Harrast,Amy Swaney
• DOI: http://doi.org/10.1002/jcaf.22294
• Date: 01 September 2017

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© 2017 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22294

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Understanding the New

International Ethics Standards

Steven A. Harrast and Amy Swaney

INTRODUCTION

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

IESBA and PCAOB

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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