NASBA’s Private Equity Task Force has released a white paper that’s open for comment until January 31, 2026, the purpose of which is “to educate Boards of Accountancy and policymakers about both the benefits and challenges of PE investment and raise questions about how best to protect investors and the public interest.”
The paper seeks feedback on a few serious questions that maybe should have been asked 4-5 years ago before the first major private equity investment took place but we’ll take what we can get. Those questions are:
- How should attest firms operating in an APS [“Alternative Practice Structure”] model with PE investment maintain audit quality and avoid undue influence and pressure to perform, if non-attest entities influence the attest firm’s management, compensation, and performance evaluations?
- What restrictions should apply to PE investors and their portfolio companies becoming attest clients of an attest firm within their same shared APS structure?
- How should peer review processes address the complexity of independence considerations introduced by APS structures with PE investment?
- Are there adequate safeguards to ensure that attest firms maintain the necessary internal knowledge and frameworks for compliance with the AICPA Code, and federal/state laws and rules, specifically around the protection of confidential client information?
- How can Boards of Accountancy and other standard setting bodies address independence concerns based on the size and scale of attest firms’ relationships?
- Are there positions taken within PEEC’s memorandum Potential revisions to the AICPA Code of Professional Conduct and guidance related to independence in alternative practice structures that you believe should impose more restrictive requirements regarding attest firm independence? If so, which provisions, how would you modify them, and why?
- Would your Board of Accountancy consider adopting stricter laws or rules associated with independence than those in the AICPA Code, to enhance public protection?
Given the huge impact private equity has already had and the ethical concerns that have emerged since it started making waves in the profession only four years ago, we anticipate responses to this paper to be varied and riveting (actually riveting, not the sarcastic riveting we so often see in topics near and dear to the accounting profession). It’s always fun when there’s a topic like this that gets people on either side of a viewpoint all worked up.
Anyone who does not want to bother with sending an official comment to NASBA is welcome to vandalize the comment section below instead and/or submit a letter to the editor with your thoughts.
We’ve dealt with some of these questions at our firm. We audit funds that invested in an APS structure and had to figure out whether that meant we could or couldn’t have component audit relationships with the audit practice of the acquired firm, for instance. It’s a headache for sure and the independence rules did not contemplate it very well.
What about quality of the tax work with the attrition and turnover of the employees is through the roof after PE roll ups?
Seems like PE got creative to find a loophole in order to gain “legal” access to the returns generated by the public accounting profession. I can’t blame them, but definitely seems like there is a lot of risk regarding the perception of trust in the public accounting profession as a whole. Glad that this is being looked at more now, but seems like this may be too little too late. The idea that this is even being raised as a topic for further consideration and reading the complexities involved should show that members of the general public would have a high likelihood of questioning the trust aspect of having PE involved with public accounting.