IESBA proposes requiring accountants to disclose certain illegal acts by clients, employers

22 August 2012

Stuart Gittleman of Thomson Reuters reports on the release of the IESBA's Exposure Draft, 'Responding to a Suspected Illegal Act'. Under requirements proposed by the IESBA, accountants would face new standards for disclosing suspected illegal activity by a client or employer.

The IESBA released for public comment a draft proposal, Responding to a Suspected Illegal Act, which describes the circumstances in which a professional accountant is required or expected to breach confidentiality, one of the five fundamental principles in the IESBA code, and disclose the act to an appropriate authority.

The so-called exposure draft would add two new sections to the code on illegal acts, one each for professional accountants in public practice and in business, and several revisions to other related sections.

According to the draft, “If the response is not appropriate and, in the judgement of the professional accountant, the suspected illegal act is of such consequence that disclosure would be in the public interest:

• a professional accountant providing professional services to an audit client would be required to disclose certain illegal acts to an appropriate authority, and
• a professional accountant providing non-audit services to a client that is not an audit client and a professional accountant in business would be required to disclose the matter to the entity´s external auditor, if any, and in certain circumstances, would have a right to disclose certain illegal acts to an appropriate authority and would be expected to exercise that right.

The draft would include false reporting as well as fraud in its definition of “illegal act”, but would exclude personal activity unrelated to the entity's business.

Press release

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