The burden will be on individual accountants to report violations from April 2022.
Chartered accountants are readying themselves for a higher onus on individuals to report violations that they come across as part of their work.
There has been a scramble to understand the implications as the non-compliance with laws and regulations (NOCLAR) comes into effect in less than six months.
It is applicable from April 1, 2022 after being deferred earlier because of the Covid-19 pandemic.
This would require accountants to report on matters including fraud, corruption, bribery, money laundering, environmental protection as well as public health and safety.
They are required to report the matter to the appropriate authority or potentially face action themselves for violating the Institute of Chartered Accountants of India (ICAI) code of ethics.
Nirmalya Gupta, managing director, Protiviti Member Firm for India said that NOCLAR would require organisations to make their compliance and regulatory landscapes more robust from a financial statement disclosure perspective.
“If a violation is not reported, it may attract disciplinary action,” he said.
From the perspective of an employee of an organisation who is an accountant and not a professional accountant rendering services to the client, one would have to see how material a violation is before determining if it needs to be reported, said Chandrika Sridhar, Partner, Deloitte India.
“Whilst there is no quantitative threshold, NOCLAR has a concept of ‘clearly inconsequential’.
"Matters of non-compliance that are clearly inconsequential ...(need)....no reporting and this needs to be judged with respect to nature and impact, financial or otherwise, on the entity, its stakeholders and general public,” she said.
The move is part of a global push towards greater accountability.
The final version became effective in 2017 after global consultations.
It sought to provide guidance to accountants on how to act if they came across violations or potential violations.
The ICAI had reduced the scope of implementation compared to global standards mandated by the global body International Ethics Standards Board for Accountants (IESBA).
“To start with, NOCLAR has been made applicable to audit assignments of listed entities with respect to chartered accountants in practice, and to employee chartered accountants of listed entities in the ICAI Code of Ethics (as against IESBA making it applicable to all professional assignments of all clients with respect to chartered accountants in practice, and to all employers in case of chartered accountants in service)…It may be relevant to note that the Chartered Accountants Act, 1949 has strict provisions pertaining to client confidentiality,” said an ICAI spokesperson in an emailed response to a query from Business Standard.
The International Federation of Accountants (IFAC) disallows member nations from following less stringent standards than those mentioned in their code, unless laws or regulations prevent the same.
“Accordingly, while converging with NOCLAR, the requirements of further action and disclosure have been modified in the Code of Ethics to the extent that they are in line with the provisions of the Chartered Accountants Act, 1949,” said the ICAI spokesperson.
A senior professional accountant might go to the authorities in case of bribery, tax evasion, actions that affect an organisation’s listed securities or cause a systemic risk to the financial markets or if an organisation is likely to sell products harmful to public health or safety; according to examples provided in the code of ethics.
The accountant is expected to take various steps engaging in confidential consultations if required. Ultimately, even a resignation can be tendered.
“Resigning from the employing organization is not a substitute for taking other actions that might be needed…However, there might be limitations as to the further actions available to the accountant. In such circumstances, resignation might be the only available course of action,” added the code of ethics.
“It may put some pressure,” said Shriram Subramanian, founder and managing director of domestic proxy advisor InGovern Research Services, adding that it may take some time before this translates into more instances of whistleblowing.
The Securities and Exchange Board of India also decided recently to increase the maximum reward for whistleblowers from Rs 1 crore to Rs 10 crore according to a statement issued after its June 2021 board meeting.
The NOCLAR norms come amid increasing pressure on those in the audit profession.
Over 200 auditors have quit listed firms before the end of their tenure got over the last seven years.
Photograph: Pawel Kopczynski/Reuters