On June 6, the Public Company Accounting Oversight Board announced for public comment a proposed auditing standard amendment that would increase auditor requirements to identify, evaluate, and communicate possible or actual noncompliance with laws and regulations, and replace AS 2405, Illegal Acts by Clients, and retitle the standard A Company’s Noncompliance with Laws and Regulations. The current public comment deadline is August 7, 2023.
I have not yet had the time to review the entire proposed amendment; however, in respect to its applicability to noncompliance with laws and regulations it strikes me as being a bit similar in nature to new AICPA member/CPA NOCLAR (Noncompliance With Laws and Regulations) ethics responsibilities when a possible or actual noncompliance with laws and regulations is noticed. As you might know, under new AICPA rules of ethics members/CPAs have new NOCLAR reporting up the ladder responsibilities effective June 30, 2023, although those responsibilities are in some ways different for members/CPAs who work in business than they are for members/CPAs who work in public practice. More important, with respect to the proposed PCAOB amendment, the proposal appears to strengthen and enact an affirmative public company auditing requirement to identify, evaluate and communicate possible or actual noncompliance with laws and regulations, whereas NOCLAR is an AIPCA member/CPA ethics responsibility and is fashioned in the manner of a reporting up the ladder requirement if possible or actual noncompliance with laws and regulations is noticed. For a long time outside auditors already have been required to include procedures for identifying and auditing for material financial fraud in their audit plan and audit procedures.
Here is a screenshot of the PCAOB June 6 announcement:
See also my November 25, 2022, post where I discussed NOCLAR requirements coming for AICPA members/CPAs working in business – the November 25, post also includes several links to posts in which I discuss CAMs. I will now also be posting a discussion about the NOCLAR rules for AICPA members/CPAs in public practice. The following are two of the paragraphs from my November 25, 2022 post discussing NOCLAR rules for AICPA members/CPAs working in business:
“NOCLAR is coming for CPAs – (NOCLAR = noncompliance with laws and regulations). NOCLARs apply to CPAs in business, and to CPAs in public practice, but with some differing provisions. This brief discussion pertains to the NOCLAR provisions that apply to CPAs in business (i.e., CPAs who work at businesses). When I was more active with CalCPA the members who worked at businesses were broadly referred to as members in the Business and Industry section. The AICPA Code of Professional Conduct contains NOCLAR provisions for members (CPAs) in business at ET 2.180.010, although under the facts and circumstances of the situation other ethics rules might well also apply. And, of course, issues of law and legal issues most likely will or may also be involved or at least relevant. ET 2.180.010 is effective June 30, 2023, but early implementation is allowed.”
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“The NOCLAR rules for CPAs in public practice are separately contained at AICPA Code of Professional Conduct ET 1.180.010, although under the facts of circumstances of the situation other ethics rules might well also apply. And, of course, issues of law and legal issues most likely will or may also be involved or at least relevant. ET 2.180.010 also is effective June 30, 2023, but early implementation is allowed.”
We are now seeing a new push to enhance and strengthen both auditing and reporting requirements, in addition to compliance processes (by the U. S. Department of Justice and others), pertaining to fraud, both financial and non-financial, and also more broadly compliance and noncompliance with laws and regulations.
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David Tate, Esq. (and inactive CPA)
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David Tate, Esq. (and inactive California CPA) – practicing only as an attorney in California.
David Tate, Esq. Headlines (and inactive CPA) – Trust, estate, probate and elder abuse disputes, litigation and contentious administrations; business litigation and internal and co-owner business disputes, litigation, and governance; real property and co-owner disputes and litigation; mediator and dispute resolution services; and social and digital media for law, people, businesses and legal risk management. 