Regulators to clear up advisors' whistleblowing rules

by Richard Crump

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23 Aug 2012

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INSTANCES WHERE accountants should override confidentiality and disclose a suspected illegal act committed by a client or employer will be revised as part of changes to the code of ethics governing the profession.

Independent standard setter the International Ethics Standards Board for Accountants (IESBA) has released an exposure draft that proposes adding two new sections addressing illegal acts - one each for professional accountants in public practice and professional accountants in business – and several revisions to other related sections.

The project, launched in November 2010, initially centred on matters associated with suspected fraud and illegal acts but has been expanded to consider examples of personal misconduct and matters that are "unethical" or "improper".

The revisions address two main elements: the process to be followed when a professional accountant encounters a suspected fraud or illegal act, and the circumstances in which a professional accountant would override the fundamental principle of confidentiality and disclose the matter to an appropriate authority.

Accountants providing services to an audit client would have a right to disclose information in instances of suspected illegal acts that directly or indirectly affect the client's financial reporting; and suspected illegal acts the subject matter of which falls within the expertise of the professional accountant.

However, before disclosing a suspected illegal act to outside authorities, accountants will be required to take reasonable steps to confirm or dispel the suspicion and to discuss the matter with the appropriate level of management.

"If the response of those with whom the matter has been discussed is not appropriate, the professional accountant shall escalate the matter to higher levels of management and those charged with governance, as appropriate," the proposal stated.

Confidentiality is one of the five fundamental principles in the ethical code. The principle imposes an obligation to refrain from disclosing outside confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose.

"Breaching confidentiality is not something to be taken lightly," said Jörgen Holmquist, chairman of the IESBA. "However, when the consequences of non-disclosure are potentially harmful to individuals or society, confidentiality must be overridden. Accountants have an important role to play in protecting the public interest and enabling authorities to take appropriate action."

Responses to the exposure draft are requested by 15 December 2012. The document can be downloaded here.

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