Accounting Ethics Standard-Setter Recommends Changing How to Respond to Illegal Acts

An ethics standard-setter for the accounting profession is suggesting changes in how accountants should respond when they suspect illegal acts are being committed by a client or employer.

The International Ethics Standards Board for Accountants released for public exposure on Wednesday new requirements that address a professional accountant’s responsibilities regarding the disclosure of suspected illegal acts committed by a client or employer. The proposals describe the circumstances in which a professional accountant is required or expected to breach confidentiality, one of the five fundamental principles in the Code of Ethics for Professional Accountants, and disclose the act to an appropriate authority.

The IESBA operates under the auspices of the International Federation of Accountants, whose member organizations include the American Institute of CPAs.

The exposure draft, Responding to a Suspected Illegal Act, proposes adding two new sections addressing illegal acts to the code of ethics—one each for professional accountants in public practice and professional accountants in business—and several revisions to other related sections. The new sections clearly delineate the expected course of action for a professional accountant to take if those charged with governance do not respond to the issue appropriately.

“Breaching confidentiality is not something to be taken lightly,” said IESBA chair Jörgen Holmquist in a statement. “However, when the consequences of non-disclosure are potentially harmful to individuals or society, confidentiality must be overridden. Accountants have an important role to play in protecting the public interest and enabling authorities to take appropriate action.”

The IESBA is inviting comments from stakeholders on its proposals. To submit a comment, visit the IESBA Web site at www.ethicsboard.org. Comments are due Dec. 15, 2012.