CPE

How a CPA should respond to a known or suspected NOCLAR

November 26, 2024

5 min read

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Part of your job as a CPA is to follow ethical business practices—and to help your clients do the same. However, when you encounter a violation of laws and regulations, what happens next?

The AICPA’s Professional Ethics Committee (PEEC) outlines your responsibilities for responding to a client’s or employer’s known or suspected noncompliance — commonly referred to as a NOCLAR. This guidance applies to CPAs in both public practice and business.

Learn more about defining a NOCLAR, when to act, and how to respond.

What is a NOCLAR?

A NOCLAR is an act of omission or commission, intentional or unintentional, that is contrary to prevailing laws and regulations.

Those who may commit a NOCLAR include:

Clients
Employers
Those charged with governance or management
Others working for or under the direction of the client or employer

For example, let’s say that you’re a CPA working in the audit area of a public firm. While performing an audit for one of your clients, you find evidence of money laundering. This is an illegal act and must be reported according to the AICPA Code of Professional Conduct.¹

Laws and regulations impacted

Money laundering is just one example of a NOCLAR. Other areas of laws and regulations that could be affected include:

Fraud, corruption, and bribery
Terrorist financing and proceeds from crime
Securities markets and trading
Banking and financial products and services
Data protection
Tax and pension liabilities and payments
Environmental protection
Public health and safety²

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What to do when you encounter a NOCLAR

As a CPA, you have access to sensitive information for your company and clients and must follow rules of confidentiality to protect this data.³ However, if you encounter a NOCLAR, what do you do? How do you balance the ethics of confidentiality with the ethics of reporting on issues of integrity and public interest?

To help you navigate these sticky situations, PEEC created guidelines that tell you when to report and when to get permission before revealing confidential data. You’re responsible for reporting a NOCLAR in the following two situations:

When laws and regulations are generally recognized as having a direct and material effect on amounts and disclosures in financial statements.
When laws and regulations state that compliance may be fundamental to the operating aspects of an entity’s business or its ability to continue its business or avoid material penalties.

If you do come across a NOCLAR that qualifies under one of these circumstances:

Gain a deeper understanding
Investigate the nature of the act and underlying circumstances
Discuss with management or someone charged with governance

It’s important to note that you aren’t expected to apply knowledge, judgment, or expertise beyond what is required to be competent for the professional service or position for which you were hired. However, expectations for understanding and addressing a NOCLAR will be different for a beginning CPA vs. a more senior professional accountant.

Likewise, a CPA whose services include reviewing financial statements or performing audits is responsible for advising the client to take timely and suitable action.

Stay ethical and compliant through CPE

Often, clients or employers may commit a NOCLAR simply because of ignorance on the latest updates to regulations. It’s therefore vital to your career that you stay informed to remain compliant.

NASBA and state board-approved continuing professional education (CPE) is the best way to keep up to date on relevant laws and regulations. Becker offers ethics CPE courses that help you meet state requirements while learning the latest changes on accounting regulations.

These ethics-focused courses — as well as 1700+ on-demand, webcast, and CPE podcast options — are all included in our Prime CPE subscription. Start learning now and grow your career!