Non-compliance with Laws and Regulations Update

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NOCLAR, which stands for Non-compliance with Laws and Regulations, was created and has been updated by the International Ethics Standards Board for Accountants (IESBA).  NOCLAR is an action that violates a law or regulation that has a direct impact on financial statements or violates laws which address compliance matters.  Recently two AICPA boards provided interpretation and clarity on the most recent updates issued by IESBA to assist CPAs when they suspect or they identify a client or employer NOCLAR. 

NOCLAR basics

NOCLAR was added to the IESBA’s Code of Ethics for Professional Accountants in July 2016, with an effective date of July 2017.  The purpose of adding NOCLAR was to make accountants in both public and private practice aware of their responsibilities if they become aware of a NOCLAR.  The IESBA specifically defines NOCLAR as compromising acts of omission or commission, intentional or unintentional, committed by a client, or by those charged with governance, by management or by other individuals working for or under the direction of a client which are contrary to the prevailing laws and regulations.  NOCLAR applies when the non-compliance would have a direct effect on the determination of material amounts and disclosures in the client financial statements or when the non-compliance with laws and regulations would affect a company’s ability to continue its business or to avoid major penalties, even if there is not a direct effect on the determination of material amounts and disclosures.

AICPA response to NOCLAR updates:

The AICPA Professional Ethics Executive Committee (PEEC) and the AICPA Auditing Standards Board (ASB) separately proposed standards to assist in bringing the AICPA standards in line with those of the IESBA.  Both proposals were designed to bring clarity to understanding the application of NOCLAR.


The PEEC exposure draft, Responding to Non-compliance with Laws and Regulations, focuses on guidance for accountants working in both public and private industry.  This exposure draft focuses on materiality and its importance in addressing NOCLAR.  The definition of NOCLAR in the PEEC exposure draft is very similar to the one used in the IESBA documentation.  The exposure draft exempts for NOCLAR  certain litigation or investigation engagements and certain tax engagements.  The PEEC defines an industry accountant’s responsibility for disclosing NOCLAR to external auditors.  The responsibilities of a public accountant in disclosing NOCLAR vary depending on if the services provided are financial statement attest services or something else.


The ASB exposure draft focuses on increasing the transparency and sharing of information between predecessor and successor auditors as part of the successor auditor’s client acceptance process.  The primary goal is to ensure that the knowledge passed between predecessor and successor auditors is sufficient enough so that a client can not move to a new auditor to avoid NOCLAR consequences.  Asking the predecessor about NOCLAR matters would be required of the successor auditor, as well as asking about any suspected or identified fraud.  The predecessor would be required to answer the questions.  If the client’s management refused to allow the communication between audit teams then the successor auditor would consider the refusal a strong warning against considering accepting the client at all.