NOCLAR Update
Caroline Gardner, Task Force Chair
Ken Siong, Technical Director
IESBA Meeting
Toronto
April 7, 2014
Page 1 | Confidential and Proprietary Information
Jan 2014 Meeting with Herbert Smith Freehills
• Analysis of stakeholder concerns on original proposals re obligation
–
Understandable concerns
–
Less compelling concerns
–
Concerns addressed by use of “right to disclose” approach
• Experience under other regimes (AML and anti-corruption)
–
Scope of obligation
–
Scope of protection
–
Practical consequences
Page 2 | Confidential and Proprietary Information
Meeting with Herbert Smith Freehills
NOCLAR – Possible Limitations
• Temporal
–
E.g., Conduct that PA believes will / is intended / may be committed
• Level of certainty
–
E.g., PA’s subjective state of mind; level of proof
• Nature of offence
–
E.g., Type or seriousness of offence; outcome of disclosure
• Role of accountant, e.g., forensics, legal privilege
• Impact of remediation, e.g., remediation steps satisfactory?
Page 3 | Confidential and Proprietary Information
Meeting with Herbert Smith Freehills
December 2013 Board-Agreed Text
• A number of comments for further reflection, e.g.
–
Suitability of broad scope dependent on extent and mandatory nature of actions
–
Importance of, and need for, clarity re types of issues to be disclosed
–
Sufficient guidance on thresholds? (e.g., significant consequences to what?)
–
Follow up needed for NOCLAR that were not inconsequential but don’t have
significant consequences?
–
Unclear if PA should disclose if entity has taken remedial action but not itself
disclosed?
–
Potential difficulties in assessing whether disclosure threshold crossed?
Page 4 | Confidential and Proprietary Information
Feb 2014 IOSCO C1 Discussion – Key Comments
• Disappointment that Board moving away from a presumption to disclose
• Risk that bar is set too high for disclosure
• Need for more specificity re what outgoing auditor should communicate
to incoming auditor
• A concern no outright prohibition on incoming auditor accepting
engagement if there is a suspected NOCLAR
• Documentation requirement in ISAs should be mentioned in the Code
• Align thresholds with the ISAs
–
Clearly inconsequential, significant consequences, public interest
Page 5 | Confidential and Proprietary Information
March 2014 CAG Discussion – Key Comments
• Current position appears weak
–
Pendulum seems to have swung too far back
• Threshold for disclosure appears too high
–
Would not capture insider trading, for example
• Public interest filter more appropriate at back end re enforcement
• Disclosure example provided too obvious
• Make clear who has responsibility to document and what to document
• Avoid increasing public expectations gap re role of auditors
Page 6 | Confidential and Proprietary Information
Update – NOCLAR Roundtables
Page 7 | Confidential and Proprietary Information
Proposed Approach to Roundtables
• Opening remarks
• Background to project; overview of proposed approach
– About 40 mins
• Breakout session
– Three concurrent groups of max 20 people each (~ 2.0 – 2.5 hrs)
• Breakout report-backs (~ 45 mins each)
• Final reactions and way forward (~ 30 mins)
Page 8 | Confidential and Proprietary Information
Invitations Sent and Responses as of April 3rd
Hong Kong
Brussels
Washington
Organizations invited
80
97
65
Responded / Bounce-backs
50
58
32
30 (38%)
39 (40%)
33 (51%)
Outstanding replies
Page 9 | Confidential and Proprietary Information
Positive Responses – Number of External
Representatives
Hong Kong
Brussels
Washington
Regulators / Public Authorities
9
11
6
Preparers
2
4
2
Investors
–
1
2
National standard setters
5
–
2
IFAC member bodies
11
13
3
Firms
7
2
4
Other organizations
2
6
4
Total
36
37
23
Page 10 | Confidential and Proprietary Information
HK Roundtable – Select Key Organizations
•
Australian Accounting Professional & Ethical Standards Board
•
HK Financial Reporting Council
•
HK Securities and Future Commission
•
HK Exchanges and Clearing Ltd
•
HK Narcotics Bureau
•
New Zealand External Reporting Board
•
Asian Development Bank
•
Singapore Accounting and Corporate Regulatory Authority
•
Thailand Securities and Exchange Commission
Page 11 | Confidential and Proprietary Information
Brussels Roundtable – Select Key Organizations
•
EuropeanIssuers
•
Basel Committee on Banking Supervision
•
UK Financial Reporting Council
•
Federal Financial Supervisory Authority, Federal Ministry of Justice, and
Financial Reporting Enforcement Panel, Germany
•
Netherlands Authority for Financial Markets
•
International Corporate Governance Network
•
European Securities and Markets Authority
•
Haut Conseil du Commissariat aux Comptes
Page 12 | Confidential and Proprietary Information
Washington Roundtable – Select Key Organizations
•
Canadian Public Accountability Board
•
National Association of State Boards of Accountancy
•
US Chamber of Commerce
•
US Public Company Accounting Oversight Board
•
US Securities and Exchange Commission
•
CFA Institute; Center for Audit Quality
•
Council of Institutional Investors
•
International Association of Insurance Supervisors
•
North American Financial Executives Institutes
Page 13 | Confidential and Proprietary Information
Forward Timeline
• IFIAR SCWG discussion – April 8
• Forum of Firms discussion – April 24
• Task Force meeting – April 25
• Feedback statement for RT
– Draft to Board for fatal flaw review – April 23
– Final draft for distribution to all RT participants – April 30
Page 14 | Confidential and Proprietary Information
Forward Timeline
• Final RT agendas – April 30
• IESBA-NSS meeting – May 28
• Update July 2014 Board meeting
• CAG discussion September 2014
• Full review October 2014 Board meeting
Page 15 | Confidential and Proprietary Information
The Ethics Board
www.ethicsboard.org