The role that chartered accountants play in the fight against fraud is continually evolving. One of our previous blogs was dedicated to the draft fraud protocol that applies to chartered accountants. The present blog addresses the Detailed NOCLAR Rules applicable to chartered accountants, which take effect on 1 January 2019. NOCLAR stands for non-compliance with laws and regulations. The Detailed NOCLAR Rules are binding rules on how chartered accountants must deal with non-compliance on the part of their audit clients, as well as other forms of non-compliance. This means that these rules are also relevant for companies since they clarify their accountants’ position on non-compliance.
In essence, the Detailed NOCLAR Rules impose the obligations listed below on chartered accountants.
• Duty to examine: if there are signs of non-compliance, chartered accountants must, where this is reasonably possible, collect relevant information about the non-compliance. The scope of the potential irregularities that chartered accountants must examine is not limited to accounting and reporting rules: fraud, corruption, aspects of the Dutch Anti-Money Laundering and Terrorist Financing Act (Wet ter voorkoming van witwassen en financiering van terrorisme or ‘Wwft’), the Dutch Financial Supervision Act (Wet op het financieel toezicht or ‘Wft’), the GDPR, environmental legislation and working conditions legislation also fall within the scope of irregularities.
• Duty to report: chartered accountants must immediately report the relevant non-compliance to an external party, such as the Financial Intelligence Unit (FIU), investigative services or supervisory authorities, if that appears necessary in order to limit substantial loss/damage. The reporting duty laid down in the Detailed NOCLAR Rules is a legal duty and therefore constitutes an exception to accountants’ duty of confidentiality, which is also a legal duty. Chartered accountants must also report suspected irregularities to their audit clients. This may result in the initiation of an investigation under the whistle-blowers’ scheme at the client.
• Duty to consult: chartered accountants must discuss non-compliance with their audit clients and, in the case of a group audit, with the other chartered accountants involved in the group audit.
• Duty to monitor: chartered accountants must monitor whether their audit clients respond appropriately to the non-compliance identified.
In the case of audits, most of the duties listed above are already prescribed in existing regulations. The purpose of the Detailed NOCLAR Rules is not to amend existing rules, but to expand on the existing Code of Conduct and Professional Practice for Accountants Regulation (Verordenings gedrags- en beroepsregels accountants or ‘VGBA’).
• The Further Regulations regarding Audit and Other Standards concerning standard 250 (‘NV COS 250’) concern accountants’ responsibility to observe laws and regulations when auditing financial statements, and they address accountants’ examination duties in detail.
• Under the Wwft, the Dutch Audit Firms (Supervision) Act (Wet toezicht accountantsorganisaties or ‘Wta’) and the elaboration on the VGBA prepared by the Accountancy Division (Accountantskamer), chartered accountants have the duty to actively inform authorities about suspected as well as established non-compliance. It is worth noting that under the new rules, chartered accountants must assess whether it is necessary to report suspected or established non-compliance to a competent authority in order to prevent or limit loss/damage to an audit client or others. This assessment is normally made by an audit client’s board. According to the explanatory notes, the situations in which this new duty to report arises may involve danger for the acute safety of persons or the environment, but also, for example, the supply of weapons to countries against which sanctions have been imposed. Naturally, this immediately raises questions about this reporting duty in cases involving the supply of dual-use goods or potential terrorist financing.
• NV COS 250 imposes the obligation on chartered accountants to discuss non-compliance with an audit client’s board, unless the board is involved in the irregularities (a reservation that is not made in the new rules).
• NV COS 600 provides that group accountants must instruct the accountants of group companies to share signs of relevant non-compliance. That also applies vice versa, since that is the only way the accountants of the group companies can be aware of all the relevant compliance risks and will be able to structure the audit appropriately.
• The Dutch Audit Firms (Supervision) Decree (Besluit toezicht accountantsorganisaties or ‘Bta’) states that chartered accountants will not report non-compliance to investigating officials if their audit clients have investigated the non-compliance and have prepared and implemented a plan of measures. With regard to the statutory audit of public-interest entities, Regulation (EU) No 537/2014 also imposes the obligation to notify the authorities about signs of fraud if the audit client does not investigate them properly. In the case of audit engagements, the Detailed NOCLAR Rules appear to give further substance to the contents of such a plan.