The trust accountant/advisor cannot look the other way 11 October 2023

Professional accountants, whether they act as accountants, advisors and/or trustees of trusts, play important roles in the renewed focus on trusts, including a responsibility to report on non-compliance with laws and regulations that deal with matters such as fraud, corruption and bribery, money laundering, tax payments, financial products and services, environmental protection, and public health and safety. Non-compliance goes way beyond reportable irregularities and includes actual or suspected non-compliance with our country’s laws including the Trust Property Control Act, the Estate Duty Act, the Transfer Duty Act, and the Income Tax Act.

Responsibility of public accountants to act in the public interest

Various professional accounting bodies in South Africa such as SAICA and SAIPA, are members of the International Federation of Accountants (IFAC), which is the global organisation for the accountancy profession, dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies. These professional accounting bodies’ codes of professional conduct follow the International Ethics Standards Board for Accountants (IESBA) standards. The structures and processes that support the operations of the IESBA are facilitated by IFAC.

In terms of their codes of conduct, professional accountants have an ethical responsibility not to turn a blind eye to acts or suspected acts of non-compliance with laws and regulations. As this may place the professional accountant in a difficult and stressful position, the IESBA issued further guidance when faced with non-compliance or suspected non-compliance, called the Non-Compliance with Laws and Regulations (NOCLAR) pronouncement. The purpose of the NOCLAR pronouncement, effective from 15 July 2017, was to develop enhancements to the IESBA Code to help guide professional accountants in dealing with such situations and in deciding how best to act in the public interest. It sets out a framework that requires professional accountants to take action when they become aware of any illegal or potential illegal act. The NOCLAR pronouncement is applicable to all professional accountants, including auditors, professional accountants in public practice providing services other than audits of financial statements and other assurance services (such as accounting, tax, and training services), and those in business (such as employees and senior professional accountants).

In dealing with non-compliance or suspected non-compliance, the professional accountant should comply with the fundamental principles of integrity and professional behaviour in the code while taking public interest into consideration. The objective should be to correct the NOCLAR and remediate or prevent its occurrence where it is still being suspected. When the professional accountant becomes aware of non-compliance (or suspected non-compliance), they should understand the matter, address the matter, determine whether any further action is to be taken, determine whether to disclose the matter to an appropriate authority (such act will not be considered as a breach of confidentiality but an act of good faith in the interest of the public), and document the matter, the result of discussions with the trustees or co-trustees, as well as actions taken.

The professional accountant as a trustee

Professional accountants acting as trustees of trusts fall under the category of senior professional accountants since they are able to exert significant influence over and make decisions regarding the acquisition, deployment, and control of human, financial, technological, physical, and intangible resources. Two aspects are important regarding NOCLAR and being a trustee of a trust – the professional accountant is expected to have a level of understanding of laws and regulations required of their role as trustee, and the professional trustee is obliged to act in accordance with their professional code and the NOCLAR pronouncement. This is onerous, and professional accountants have to carefully consider that before accepting the role of trustee. The professional accountant should consider resigning as the trustee of the trust when appropriate, for example, if they are in the minority and overridden.

The professional accountant as the trust accountant

An interesting section was found in the SAIPA Member Guide dealing with accounting officers for trusts: The “Technical Committee of SAIPA recommends that the trustees should seriously consider the appointment of an appropriately qualified person to report on the financial affairs of the trust. In the view of the Technical Committee, qualified persons would include only those professional accountants that are members of an accountancy body and who are in possession of a specialisation qualification in the administration of Trusts”.

If the trust’s financial records are to be audited in terms of the provisions of the trust instrument, Section 15 of the Trust Property Control Act requires the auditor to report any material irregularity to the board of trustees. If the irregularity is not rectified to the satisfaction of the auditor within one month, then the auditor should report it in writing to the Master of the High Court. The NOCLAR pronouncement expands the reporting requirements of a professional accountant beyond the limited scope of Section 15.

The SAIT’s Code of Professional Conduct in Relation to Taxation also requires its members to comply with relevant laws and regulations and to disclose proof or suspicions of criminal activity.

The professional accountant as the trust administrator

The SAIPA Member Guide also deals with administration services provided to trusts. It states that the “Technical Committee of SAIPA recommends that Trustees obtain only the services of competent and qualified persons to assist them with their stringent administration duties imposed in terms of the trust deed, in terms of the common law and in terms of the Trust Property Control Act”. As the majority of family trustees rely on their accountants to assist and guide them, this principle should also apply to all other professional accountants.