The American Institute of CPAs’ Professional Ethics Executive Committee (PEEC) is set to launch a public consultation on proposed ethic changes for alternative practice structures, including those backed by private equity investment.
Provisions governing alternative practice structures have existed in the AICPA Code of Professional Conduct since 2000.
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
However, an acceleration in private equity deals across the profession has prompted PEEC to clarify requirements on conflicts of interest and independence.
The review focuses on structures where an audit and attest firm is closely affiliated with an operating entity that maintains financial and operational relationships with an external investor.
Under AICPA rules and state regulations, CPAs must retain at least majority ownership of attest firms.
Where an alternative practice structure involves significant outside investment, a formal separation is required between the entity carrying out assurance engagements and the entity handling non-attest work.
PEEC released an initial proposal in December. The revised draft incorporates feedback gathered from 81 stakeholder comment letters submitted earlier this year.
Under the updated terms, the designation ‘alternative practice structures’ is restricted exclusively to arrangements that include an investor.
Complex conventional structures that operate without an investor will continue under existing code provisions.
The draft also defines a ‘closely aligned entity’ as one that gains substantial economic benefit from the attest practice while supplying critical operating resources, such as personnel, technology platforms, or premises.
Standard suppliers, joint ventures, and routine commercial relationships are excluded.
The attest practice, the closely aligned business, and the entity’s controlling investor would all be classified as network firms subject to audit and review independence rules.
Controlling investors were not automatically categorised in this manner in the previous draft.
The proposal also broadens the definition of ‘covered members’ bound by independence restrictions, automatically encompassing roles such as the CEO of the closely aligned entity.
In addition, attest practices would be barred from providing services to organisations over which the investor exercises significant influence.
A 120-day consultation opens once PEEC publishes the exposure draft on the AICPA website. If approved next year, the rules take effect 12 months after adoption, with early adoption permitted.
