Module: | Statutory Audit, NFRA & ICAI Standards
Q51: Consider the following statements regarding the NOCLAR (Non-Compliance with Laws and Regulations) provisions in the ICAI Code of Ethics:
1. NOCLAR sets out the professional responsibilities of an auditor when they encounter a suspected or actual non-compliance with laws by a client.
2. The NOCLAR provisions are currently applicable exclusively to the audits of listed entities and do not apply to the audits of unlisted private companies.
3. An auditor is required to report the non-compliance to an appropriate external authority even if it breaches the fundamental principle of client confidentiality, provided it is in the public interest.
Which of the above statements is/are correct?
2. The NOCLAR provisions are currently applicable exclusively to the audits of listed entities and do not apply to the audits of unlisted private companies.
3. An auditor is required to report the non-compliance to an appropriate external authority even if it breaches the fundamental principle of client confidentiality, provided it is in the public interest.
Which of the above statements is/are correct?
✅ Correct Answer: B
🎯 Quick Answer:
B. Only 1 and 3 are correct.Structural Breakdown: Statement 1 is correct; it dictates the response protocol for discovered legal violations.
Statement 2 is incorrect; while initially rolled out for listed entities, the ICAI expanded the applicability of NOCLAR to all audit engagements, including unlisted entities, to ensure uniform ethical standards.
Statement 3 is correct; NOCLAR explicitly overrides the standard duty of confidentiality if the non-compliance poses a substantial harm to investors, creditors, or the general public.
Historical/Related Context: Historically, auditors often remained silent on client frauds that did not directly impact the financial statements, citing confidentiality.
NOCLAR was introduced globally by the IESBA and adopted by ICAI to force auditors to act as responsible corporate citizens.
Causal Reasoning: The public interest in stopping major crimes (like environmental dumping, money laundering, or tax evasion) outweighs a private corporation's right to keep its illegal activities confidential from regulators.