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Responding to Suspected Illegal Acts

Responding to Suspected Illegal Acts. Dublin, February 2012. Responding to Suspected Illegal Acts. Recap of October 2011 Meeting. Task Force Proposal in October Meeting Report internally and escalate if response not appropriate

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Responding to Suspected Illegal Acts

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  1. Responding to Suspected Illegal Acts Dublin, February 2012

  2. Responding to Suspected Illegal Acts Recap of October 2011 Meeting • Task Force Proposal in October Meeting • Report internally and escalate if response not appropriate • Responsibility to report to appropriate authority if entity has not appropriately addressed the matter and, in the judgment of the professional accountant it is in the public interest to disclose to an authority • Matters reportable to an appropriate authority are those that (i) affect financial reporting or (ii) are within the expertise of the professional accountant • In determining whether disclosure is in the public interest the professional accountant shall consider “whether a reasonable and informed third party, weighing all the specific facts and circumstances, would be likely to conclude that the suspected illegal act is of such consequence that disclosure would be in the public interest”

  3. Responding to Suspected Illegal Acts Recap of October 2011 Meeting • General support expressed for the approach adopted • However, the Board unable to reach a consensus on “responsibility” versus “right” • Task Force was asked to develop wording to convey a “robust right”

  4. Responding to Suspected Illegal Acts Revised Task Force Proposal • Develop two alternative approaches: • Robust right to disclose • Responsibility to disclose with right to override the requirement if the personal safety is threatened

  5. Responding to Suspected Illegal Acts Revised Task Force Proposal • Robust right • “A professional accountant is expected to exercise this right in order to fulfill the accountant’s responsibility to act in the public interest. If the professional accountant does not exercise this right the accountant shall terminate all professional relationships with the client (or resign from the employing organization).” (Sections 225.10, 225.19 and 360.9) • Requirement with right to override: • “In exceptional circumstances a professional accountant in public practice is not required, under this section, to disclose the suspected illegal act if a reasonable and informed third party would conclude that the probable threats, harassment or reprisals to the professional accountant are sufficiently severe to outweigh the public interest in disclosure. In such cases, if the professional accountant determines not to disclose the suspected illegal act, the accountant shall document the rationale for not disclosing.” (Sections 225.13, 225.22 and 360.12)

  6. Responding to Suspected Illegal Acts Revised Task Force Proposal • Majority position in the task force:

  7. Responding to Suspected Illegal Acts Revised Task Force Proposal • Other changes to Sections 225 and 360: • Requirement for professional accountant performing NAS to audit client to consult with audit partner • Expertise of the professional accountant – deleted fraud, bribery and insider trading • Responsibility for professional accountant performing NAS to non-audit client to disclose to external auditor only where unable to escalate internally to the entity • When disclosure is not made, the rationale for disclosure shall be documented

  8. Responding to Suspected Illegal Acts Proposed changes to existing sections of Code • Professional accountant shall refuse to be associated with unethical behavior (100.22) • Disclosure to external auditor is not a breach of confidentiality (140.4) • Responding to unethical behavior and fee pressure (section 210): • Use safeguards to reduce to acceptable level or resign • Reference to ethics policies and whistle-blowing procedures (300.5) • Inclusion of example of behavior that impairs integrity (300.6) • Responsibility to discuss unethical behavior within organization and escalate (300.15)

  9. Responding to Suspected Illegal Acts Discussion • The Board is asked to consider the two alternatives: • Robust right • Responsibility • In considering the two alternatives the Board is asked to consider whether different levels of responsibility should be assigned to each of the three categories of accountant • The Board is asked to consider the other changes to Sections 225 and 360 and the changes to the existing sections of the Code

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