APES 110 – accountants, whistleblowers and safe harbour advisers to note

Increased professional obligations of accountants, and insolvency practitioners, to refer breaches of the law to the authorities, are being considered at a meeting of the Accounting Professional and Ethical Standards Board (APESB) on 19 May. These have a potential impact by way of leaving whistleblowers with liabilities for which corporate law is yet to consider protection, and in respect of which, in insolvency, whistleblowing rights have already commenced.  There may be also a potential impact on insolvency accounting advisers assisting a director client in resolving the financial distress of the client’s business during the proposed ‘safe harbour’ period.  

Accounting Professional and Ethical Standard 110 (APES 110) is the international Code of Ethics for Professional Accountants monitored by the APESB. APES 110 sets the standard of ethics with which all professional accountants must comply.

The pending introduction into that standard of an accountant’s obligation to respond to and refer any observed ‘non-compliance with laws and regulations’ – ‘NOCLAR‘ – is up for review by the APESB on 19 May.  It has been expected that the changes would commence, after what has been a six year negotiation and drafting process, internationally, on 15 July 2017. 

However, the accounting bodies have said to APESB they and their members need more time to understand the new requirements and to implement the change in culture that needs to occur.

The changes would require accountants to refer serious breaches of the law to the authorities. All citizens in NSW have this obligation under the criminal law in any event.

The NOLAR obligation appears to be confined to reporting on an accountant’s employer or clients.  Knowledge of a breach of the law by another party to an accounting client’s transaction does not appear to come within the obligation.  The law might say otherwise, for example in relation to money laundering, bribery or tax fraud.

From a legal perspective this is an issue for caution, with accountants being asked to assess legal breaches, and act upon them, with no apparent legal protection for reasonable conduct in good faith. 

For these and other reasons, the various professional bodies – CPA, CAANZ and IPA – and major firms Pitcher Partners, Deloitte and PWC – have asked APESB to defer the NOCLAR changes for up to one year. One reason behind this is that APESB, apparently belatedly, has asked government for legal protection for accountants who do refer breaches, in the current whistleblowing law review by Treasury.

How far the law would go in supporting the accountants’ decision to assume NOCLAR obligations without apparent regard to their own legal protection is open to question.

Accountants might like to have the matter deferred if only to take legal advice on those risks.

Insolvency accountants

Insolvency practitioners generally need to be accountants, although not necessarily professional accountants.  Other disciplines, including law, can suffice.

The NOCLAR changes may or may not apply to insolvency practitioners who are professional accountants. APES 110 applies to “clients” and an insolvency practitioner has no clients per se. It does apply to a practitioner’s employer, in a broad sense meaning the firm. This was an issue in the professional demise of Stuart Ariff. APES 110 cannot interfere with the legal obligations that liquidators have under the Corporations Act to refer breaches of any law in relation to the company to ASIC – corporate, environmental, tax, OHS, criminal; nor that trustees have to refer breaches of the Bankruptcy Act to AFSA. 

But beyond clients and employers, and their statutory obligations, insolvency practitioners may come across information about serious breaches of the law. Insolvency investigations can potentially be far reaching, and findings unexpected, beyond the affairs of the particular company in liquidation or individual bankrupt. A general obligation of professionalism will often require a referral being made.

APES 330 -Insolvency Services

Not on the APESB agenda for 19 May is any revision of APES 330. APESB says it is awaiting ARITA’s updating of its Code of Professional Practice to reflect the various law reforms, many of which have started, with others to follow from 1 September, and more potentially to follow from that. 

APESB says that once these law reforms are finalised, it will need to review APES 330 to ensure the standard reflects the new legislation. It will also need to address changes in other standards, AS ISO 19600:2015 Compliance Management, AS/NZS 31000:2009 Risk Management and AS ISO 10002:2004 Complaints management. 

Whistle blower laws, proposed and in place

It should not be overlooked that there is already whistle blower law in place in insolvency, whereby all professional accounting and legal bodies can, and perhaps may be required or expected to, refer suspected misconduct of an insolvency practitioner to ASIC or AFSA, and share the regulators’ confidential practitioner information. Whether a culture required to support that new regime will develop is questionable, none of the relevant bodies showing any discernible promotion of their new powers and responsibilities.  Nor has the need been raised for professional bodies to offer support and protection for their whistleblower members.  Code and APES 110 revisions may yet address that.

Safe harbour advisers

The final comment at this stage is to note that the NOCLAR obligation would appear to apply to an insolvency accountant who is engaged by directors as an appropriately qualified adviser to provide them with the government’s proposed safe harbour protection while they attempt to restructure their potentially insolvent company.  It seems inconsistent with that role if the adviser were obliged under APES 110 to refer all breaches of the law by their struggling client to the authorities. 

APESB meeting

The APESB is meeting to decide these issues is on 19 May 2017. 

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