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Page 1 | Confidential and Proprietary Information
NOCLAR Update
Caroline Gardner, Task Force Chair
Ken Siong, Technical Director
IESBA Meeting
Toronto
April 7, 2014
Page 2 | Confidential and Proprietary Information
• 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
Jan 2014 Meeting with Herbert Smith Freehills
Page 3 | Confidential and Proprietary Information
• 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?
NOCLAR – Possible Limitations
Meeting with Herbert Smith Freehills
Page 4 | Confidential and Proprietary Information
• 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?
December 2013 Board-Agreed Text
Meeting with Herbert Smith Freehills
Page 5 | Confidential and Proprietary Information
• 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
Feb 2014 IOSCO C1 Discussion – Key Comments
Page 6 | Confidential and Proprietary Information
• 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
March 2014 CAG Discussion – Key Comments
Page 7 | Confidential and Proprietary Information
Update – NOCLAR Roundtables
Page 8 | 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 9 | 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
Outstanding replies 30 (38%) 39 (40%) 33 (51%)
Page 10 | 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 11 | 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 12 | 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 13 | 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 14 | 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 15 | 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
