Accountants New Duty: Policing Your Clients
There are three separate developments covered in this blog which share a common theme of regulatory change requiring better transparency and honest dealings by businesses and their advisors.
- A recent Federal Circuit Court decision where an external accountant was found liable as an accessory for a client underpaying wages.
- Changes to APES 110 which modify the duty of confidentiality to require accountants to report breaches of law and regulations to public authorities.
- An expanding ATO compliance program of requiring businesses to disclose their most contestable and material tax positions.
Fair Work Ombudsman and Blue Impression Pty Ltd
An accounting firm was engaged by a client to provide payroll services. The client was a fast food restaurant paying its staff a flat hourly rate in disregard of award provisions. The client admitted to breaches of the Fair Work Act 2009. The Court found that the accounting firm was an accessory to the breach also. The accounting firm denied such work was part of their scope or part of their expertise. The Court found they were liable because they had all the necessary information available to identify the breaches of the award. The Court found that the accounting firm had “deliberately shut its eyes to what was going on in a manner that amounted to connivance in the contraventions by the first respondent“. Liability was found under Section 550 of the Fair Work Act 1999 which provides “a person who is involved in a contravention of a civil remedy provision is taken to have contravened that provision…”
The penalty hearing was adjourned, but the financial exposure was a possible penalty of up to $51,000 per contravention and there were seven contraventions found. (The contraventions being failure to pay: (1) minimum hourly rate, (2) evening loading, (3) Saturday loading, (4) Sunday loading, (5) Public Holiday penalty rate, (6) special clothing allowance, and failure to provide meal and rest breaks; from which it can be seen one decision (to pay a flat hourly rate), can result in multiple breaches).
This is clearly of relevance and concern to any accountant who offers out-source services of processing transactions and managing compliance for payroll.
Responding to Non-Compliance with Laws and Regulations (“NOCLAR”)
Confidentiality is one of the five fundamental principles contained in the APES 110 Code of Ethics for Professional Accountants (‘the Code’). It previously meant that without “proper and specific authority”, or without “right or duty”, the professional accountant was not able to disclose information obtained as a result of professional and business relationships.
Starting from 1 January 2018 in Australia, the Code will be updated for NOCLAR. The changes have already been published and are available from the website of the IESBA (International Ethics Standards Board for Accountants) here.
NOCLAR emphasises that a “distinguishing mark” of the accounting profession is the responsibility to act in the public interest. The new provisions carve out any breach against the duty of confidentiality if the accountant determines that disclosure to an appropriate authority is appropriate, even if there is no law or regulation requiring such disclosure from the accountant (but not if disclosure is specifically contrary to a law or regulation). It even provides for that in “exceptional circumstances” of an “imminent breach”, the accountant might notify appropriate authorities without first discussing the matter with management or those charged with governance.
The provisions are couched in terms such as the accountant being required to act “in good faith” and with due “caution” when taking any step to report, and first “obtaining legal advice” is mentioned three times. There is implied acknowledgement that this is uncertain and risky territory. The provisions indicate that in most instances, the accountant will be reporting to and assisting management or those charged with governance to appropriately respond to the issues themselves.
The types of breaches that are being aimed at are those that are material to an entity’s financial statements and operations, and/or have a clear public interest aspect. Examples of areas of laws and regulations that are sought to be addressed are:
- Fraud, corruption and bribery
- Money laundering, terrorist financing and proceeds of crime
- Securities markets and trading
- Banking and other financial products and services
- Data protection
- Tax and pension liabilities and payments
- Environment protection
- Public health and safety
The NOCLAR provisions directly provide a framework for working through and documenting a response to knowledge of a breach. They put positive obligations on accountants to seek out facts including of the breach, the regulatory and legal environment and the potential consequences. This may include conducting investigations and seeking legal counsel. Remedial steps may simply include reporting to management. However, reporting to management may not be enough by itself. The NOCLAR provisions extend to assessing if further action is necessary and whether confidence in the integrity of management can be maintained. We note that the professional bodies have services for their members to discuss ethical issues such as CA here and CPA whose website has a link to the Ethi-Call service.
ATO Expanding the Reportable Tax Position Schedule
The Australian Taxation Office has been operating a Reportable Tax Position (‘RTP’) schedule that requires large businesses to disclose their most contestable and material tax positions.
It has been reported, that this will be extended to the top 1000 companies in Australia. The expansion of the program from only select large businesses down to businesses with revenues of $250 million, might continue to extend further depending on the success and the “aggression” of the ATO’s collection policies.
We note that we have seen recent evidence of the ATO more swiftly and efficiently moving through the gears of their collection tools than may have previously been the case. The collection tools include credit reporting, issuing garnishee notices to company and director bank accounts (in circumstances when the director became personally liable for the company debt as a result of non-compliance with a Director Penalty Notice), issuing Creditors Statutory Demand notices and winding-up companies.