A task force of the American Institute of CPAs’ Professional Ethics Executive Committee (PEEC) has posted a discussion memo on potential revisions to independence rules related to alternative practice structures, changes necessary because of the increasing prevalence of private equity investment in accounting firms.
The committee’s Alternative Practice Structures Task Force will seek comment through June 15 on the memo’s preliminary conclusions and two interpretation options. Comments can be sent to ethics-exposuredrafts@aicpa.org.
PEEC developed its task force two years ago to examine issues raised by private equity investors in accounting. The task force last month said it planned to seek feedback on its recommendations once the discussion memo was published for review. The memo includes two options for revisions – one that includes a specific private equity-related example, and another that is more general. In both instances, the draft interpretations would create a three-step process:
- Determine which entities associated with the alternative practice structure are network firms, a term defined in the code. Network firms are subject to independence requirements for financial statement audit and review clients.
- Determine which individuals associated with the alternative practice structure are covered members subject to independence requirements.
- Determine which additional relationships and circumstances associated with the alternative practice structure create threats to independence, and
- Identify relationships and circumstances where independence would be impaired.
- Apply the “Conceptual Framework for Independence” (ET sec.1.210.010) to any other relationships and circumstances that the member knows or has reason to believe may exist.
When evaluating the first step, the non-attest entity would be considered a network firm of the attest firm. Alternatively, a private equity investor, its funds and other portfolio companies would generally not be considered network firms, so portfolio companies could conceivably provide non-attest services to any attest clients. However, there may be circumstances where a portfolio company could be defined as a network firm for other reasons that will be spelled out in the task force’s discussion memorandum.
After the comment period for the discussion memo ends, PEEC plans to use the feedback to supplement its research and develop a formal exposure draft.
For more information on PEEC, please visit the committee’s resource page.
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Tags: Accounting
William McGovern March 18 2025 at 10:26 am
Nice to know the AICPA is on top of this development.