International Federation of Accountants Illegal Acts New York, NY October 17-19, 2011

Requirement versus right to disclose: –Majority of CAG members were favorable to a requirement –Two CAG members (Gulf States Regulator and FEE) were not in favor of a requirement –Some CAG members who favoured a requirement recognized that it may be difficult to implement globally All CAG members thought the public interest threshold was appropriate Matters emerging from CAG Meeting

Unethical or improper behavior is addressed under Client Acceptance (paragraphs to 210.5) and paragraph Professional accountant performing non-audit services to a non-audit client –Preliminary requirement is to report to external auditor –Requirement to report outside the entity if illegal act relates to subject matter of the engagement –Separate paragraph on client that is an individual (225.21) Linking disclosure to “matters of such consequence that disclosure would be in the public interest” Key changes to the proposed guidance

Task force proposal: –Matters that (i) affect financial reporting or (ii) are within the expertise of the professional accountant and that (iii) have not been appropriately addressed by the entity –In determining whether disclosure is in the public interest the professional accountant shall consider “whether a reasonable and informed third party, weighing all the specific facts and circumstances, would be likely to conclude that the suspected illegal act is of such consequence that disclosure would be in the public interest” –Professional accountant “shall act reasonably, in good faith and exercise caution when making statements and assertions” Nature of matters to be disclosed

Proposal for disclosure Professional accountantResponse Professional accountant performing professional services to an audit client Requirement to disclose to an appropriate authority Professional accountant performing professional services to a non-audit client Requirement to disclose to an appropriate authority if related to the services being performed or, otherwise, to the external auditor Professional accountant in businessRequirement to disclose to an appropriate authority

Arguments in favor of a requirement –A requirement is consistent with acting in the public interest –Promotes consistency in disclosure –Disclosure by the professional accountant would be the last resort –Would increase cases of disclosure –Responsibility for determining whether action should be taken ultimately lies with an appropriate authority Arguments in favor of a right –Protective mechanisms cannot be imposed by the Code –A right enables accountant to take into account whether a fair judicial system exists –Existing disclosure regimes, such as anti-money laundering legislation, do not impose a requirement on accountants in business –The public interest is a question of judgment and may vary from person to person Requirement versus a right to disclose

Discussion

IESBA members are asked to consider: 1.Whether they agree with the proposal to require a professional accountant to disclose certain suspected illegal acts to an appropriate authority if the illegal act is of such consequence that disclosure would be in the public interest. 2.Whether a requirement is appropriate for all three categories of professional accountant (auditor, professional accountant performing services to a non- audit client, and professional accountant in business) or whether there should be a differentiation. Discussion I

IESBA members are asked for their views on the Task Force’s proposed clarification of the reasonable and informed third party test in the determination of whether disclosure would be in the public interest. Discussion II

IESBA members are asked for their views on the other changes made to the proposed guidance since the June meeting Discussion III