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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Laws and regulations

Auditor Lena Ortiz finds that her client, Marlow Chemicals, has been discharging effluent in breach of environmental law. The matter is material, management refuses to take action, and the law in Lena's jurisdiction does not require her to report it. Under the IESBA Code, which approach to disclosure to an appropriate authority is correct?

Where no law requires reporting, the auditor may consider disclosing the matter to an appropriate authority in the public interest, weighing the seriousness and obtaining legal advice. The Code states that confidentiality is not an absolute bar to disclosure, but it does not impose automatic disclosure in every case.

  1. AShe must not disclose, because the duty of confidentiality is absolute
  2. BShe must disclose automatically, because the Code overrides confidentiality for all non-compliance
  3. CShe should consider whether disclosure is appropriate in the public interest, taking legal advice if needed, since the Code permits but does not require it where no law mandates reportingCorrect
  4. DShe should disclose only to the client's competitors to protect the public

Explanation

The IESBA Code on non-compliance with laws and regulations (NOCLAR) states that disclosure to an appropriate authority is not prevented by confidentiality, and the professional accountant determines whether to disclose after considering factors such as public interest, legal advice and the seriousness of the matter. Confidentiality is therefore not absolute, but disclosure is not automatic where no law requires it.

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