How the AICPA’s New Independence Rules Impact PE in Accounting Firms

"Integrity is doing the right thing, even when no one is watching." That’s the dilemma the AICPA Professional Ethics Executive Committee (PEEC) is tackling: How does private equity (PE) investment in accounting firms affect independence rules? And let’s be real, this isn’t just a small tweak. It could reshape how firms stay compliant while raising outside investments. With alternative practice structures (APS) on the rise, where private equity funds own a non-attest firm affiliated with an attest CPA firm, maintaining independence is trickier than ever. While PE-backed firms get a financial boost, they also bring up some thorny ethical questions.

Private Equity Meets Compliance

Private equity investments are shaking up the accounting world, leaving firms wondering: How do we stay on the right side of the AICPA Code of Professional Conduct? PEEC’s Alternative Practice Structures (APS) Task Force is on the case, fine-tuning independence rules to keep the profession’s credibility intact. While the Code has had solid guardrails for decades, new business models demand fresh interpretations to ensure auditors remain truly independent.

That’s why the task force has put out a discussion memorandum spelling out its initial conclusions and offering two possible ways to interpret the rules. The goal? Help firms play by the book while still cashing in on private equity for growth, tech upgrades, and market dominance.

Breaking It Down Step by Step

The discussion memo suggests a three-step process to evaluate independence in firms with private equity ownership:

Identify Network Firms:

• Which entities in the APS setup qualify as network firms under AICPA rules?
• Network firms must maintain independence when handling audit and review clients.

Identify Covered Members:

• Who within the APS structure is classified as a covered member? (These individuals are subject to strict independence requirements.)

Assess Threats to Independence:

• What relationships or circumstances within the APS structure could impair independence?
• Apply the Conceptual Framework for Independence to analyze any additional threats.

The Private Equity Puzzle

Here’s where things get interesting:

• The non-attest entity (owned by private equity) would generally be considered a network firm of the attest firm.
• However, PE investors, their funds, and portfolio companies would NOT automatically be considered network firms.
• This means portfolio companies could provide non-attest services to attest clients—unless specific conditions classify them as a network firm.

If this all sounds a bit like threading a needle, that’s because it is. The proposed interpretations could shake up how CPA firms handle private equity investments while staying on the right side of AICPA’s independence rules.

A Delicate Balance

Want to weigh in? The AICPA is taking public comments until June 15, 2025. Once the comment period closes, PEEC will refine its research and roll out a formal exposure draft to clarify the guidelines even further.

Industry experts are keeping a close eye on this. Susan Coffey, AICPA's CEO of Public Accounting, emphasized that while private equity is a major validation of the profession’s strength, public trust must always come first. Meanwhile, Lisa Snyder, PEEC member and task force co-chair, stressed that the task force wants to catch any unintended consequences before they become real issues.

Adapt or Fall Behind

As private equity plays a bigger role in accounting, independence standards have to evolve. The AICPA is trying to strike a balance, giving firms the financial flexibility they need while keeping attest functions rock-solid. So, what’s your take? Will these proposed changes tighten up independence, or do they leave loopholes big enough to drive a truck through? The clock’s ticking, time to make your voice heard. Never Miss a Beat! Get the Latest News, Trends, and Expert Takes Right in Your Inbox.