Here's the lowdown
The AICPA revised its private equity independence proposal after receiving 81 comment letters on the first version.
The new draft would treat the attest firm, its closely aligned entity, and that entity's controlling investor as network firms subject to audit independence rules.
A 120-day comment period is expected after the draft is posted, and any approved changes would take effect one year after adoption.
Private equity can buy the fast-growing consulting side of an accounting firm. It cannot simply buy control of the audit practice.
That split creates a hard question: Where does one business end and the other begin when they share people, technology, offices, money, and leadership?
AICPA wants a sharper line. Its ethics committee, known as PEEC, has revised a plan for independence inside investor-backed firms.
PEEC received 81 comment letters on its first plan. The new version would bring more related entities and people into the audit firm's independence network.
Why firms split the business
State law and AICPA guidance generally require CPAs to own most of an attest firm. Attest work includes audits, reviews, and other services that provide assurance on financial information.
Private equity investors usually want the broader business. That can include tax, consulting, technology, outsourcing, and advisory services.
An alternative practice structure separates those activities. A CPA-owned firm handles assurance. An investor-backed company handles other services and may supply staff, systems, and office space.
On paper, the split looks clean. Here is the catch: money and daily work can stay connected. A business tie elsewhere in the network can threaten audit independence even when it sits outside the attest firm's ownership chart.
The investor becomes part of the map
Under the revised plan, an alternative practice structure would require an investor. Complicated firms without one would stay under existing rules.
It would also tighten the meaning of a closely aligned entity.
To qualify, the other entity would need a large economic benefit from the attest firm. It would also need to be important to operations by supplying people, technology, or space. Ordinary vendors and joint ventures would not automatically qualify.
That test follows money and operations. A software vendor is different from a company that supplies the audit firm's technology, facilities, and shared workers while receiving a major financial benefit.
Three entities could become network firms
The biggest change is where the network ends.
All three players would become network firms: the attest firm, the closely aligned entity, and its controlling investor. Under the AICPA Code of Professional Conduct, those ties can affect audit independence.
Earlier language did not automatically put the controlling investor inside that network.
That could make the investor's portfolio part of client acceptance. A firm may need to know where the investor has control or influence before taking an attest job.
This is not a one-time chart. Funds buy and sell companies. A permitted client could create a conflict after the investor's next deal.
More executives would face covered-member rules
More people would also become covered members.
A covered member faces limits on financial and business ties because of a role in the firm or an attest job. The revised plan would add leaders such as the CEO of the closely aligned entity. Those executives may control resources that support the audit firm.
One client rule would become more direct. An attest firm could not serve a business over which the other entity's investor has significant influence.
Earlier language relied on affiliate rules and a broad judgment test. The revision would replace some judgment with a direct ban. Firms would still need current data on investors, portfolio companies, executives, and shared services.
What happens next
PEEC approved a 120-day public comment period that will begin after the revised exposure draft is posted. The draft was expected later in November.
If the changes are approved in 2027, they would become effective one year after adoption. Early implementation would be allowed.
AICPA is also developing tools to help firms and investors. Firms can start now by mapping ownership, money flows, shared resources, executives, and attest clients tied to the investor's portfolio.
Private equity changed the accounting firm's capital structure first. The ethics rules are now catching up to the operating structure behind it.
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