The case of Pascale’s sacrifice
Ethics
Charles Selcer, CPA, MBA | April 2021 Footnote
Editor's note: Updated March 31, 2021
Pascale Lamm, CPA noticed that his audit client had breached certain laws, a Non Compliance with Laws and Regulations (NOCLAR), in the course of his firm’s audit. The particulars were properly brought to the attention of management who blithely dismissed the matter. Pascale discussed this with his CPA firm’s leaders, and they ruled that their firm would resign as auditor.
In due time, a successor auditor contacted Pascale to make certain customary inquiries before taking on the client. Pascale demurred. He believed he cannot disclose the NOCLAR without his former client’s consent as it is confidential client information.
Q. Is this ethical?
A. Currently, yes. However, the Professional Ethics Executive Committee (PEEC) issued an Exposure Draft on Feb. 25, 2021, proposing changes in how these situations should be handled. Concurrently, the AICPA Auditing Standards Board (ASB) issued an Exposure Draft covering Inquiries of Predecessor Auditors.
The ASB proposes a requirement for a successor auditor to inquire of the predecessor auditor regarding NOCLARs once management provides authorization for them to do so. The PEEC Exposure Draft adds that auditors have to comply with professional standards and respond based upon the proposed ASB new standard regarding such communications.
Take a look at both Exposure Drafts at aicpa.org and submit comments if you want to weigh in.
