Navigating outside investors: Safeguarding ethics and independence in evolving practice structures

Editor’s note: The author is senior director–Reputation & External Relations for the Association of International Certified Professional Accountants.

Private-equity (PE) and other strategic investments have become more frequent in the accounting profession. The preferred vehicle for PE entry into the accounting profession has been the alternative practice structure (APS), which allows PE to invest in an entity closely aligned with a CPA firm (the nonattest entity), while maintaining compliance with professional standards.

The AICPA has brought together teams across the organization, coordinating efforts to provide resources and support for members considering and adapting to these and other evolving business models. The initiative engages key stakeholders such as regulators, firm leadership, academia, state CPA societies, and international standard setters.

Maintaining public trust and professional excellence is essential in this changing landscape. Therefore, firms considering an APS with a strategic outside investor should choose an investor with aligned values and goals and prioritize due diligence, robust agreements, a strong system of quality management, investor and employee education, conflicts management, and transparency.

One critical step is pretransaction due diligence, which involves working with legal counsel, regulators, and standard setters to ensure compliance with all relevant laws, regulations, and professional standards. Firms must also ensure that investors understand and are willing to comply with professional, including ethical, responsibilities at the transaction’s inception and on an ongoing basis. The AICPA’s Firm Services Division, with the assistance of experts and other stakeholders, is developing a best practices guide to assist members considering an APS with a strategic investor.

Another essential measure is the formation of the administrative services agreement between the CPA firm and the nonattest entity. This agreement should be crafted with input from experts in regulation, ethics, and compliance and should address both current and future resource needs for the CPA firm.

Quality management policies and controls are also critical for any firm, including those in an APS. Additional controls may be necessary to address the unique dynamics of the investment in the nonattest entity, such as monitoring independence and ensuring the attest function remains protected. The AICPA’s Firm Quality Division has a task force dedicated to adapting to changes in guidance related to APSs and ensuring the continuance of effective peer reviews of firms practicing in APSs. Audit quality should be preserved or enhanced through strategic investment and must not be diminished — either in the short or long term — by profit-driven motives.

Central to the AICPA’s efforts to prioritize quality is the Professional Ethics Executive Committee (PEEC), which recognized in the early 2000s that evolving practice structures required clear guidelines to maintain the integrity and independence of attest services. As a result, an interpretation under the “Independence Rule” (“Alternative Practice Structures” (ET §1.220.020)) and under the “Form of Organization and Name Rule” (“Alternative Practice Structures” (ET §1.810.050)) were adopted into the AICPA Code of Professional Conduct (Code). These and other applicable interpretations guide firms in maintaining independence and complying with other ethical principles.

PEEC established a dedicated task force in January 2023 to examine the ethical implications of PE’s involvement in APSs. This group has been actively sharing findings, soliciting feedback, and working toward revisions to the Code. At its November 2025 meeting, PEEC will be considering an exposure draft that includes a new proposed “Alternative Practice Structures” interpretation under the “Independence Rule,” along with proposed revisions to other areas of the Code. The proposed guidance aims to address APSs broadly, including those with a PE investment in the nonattest entity.

To attend a PEEC open meeting, go to the PEEC Meeting Materials and Information webpage. From there, AICPA members can access meeting agendas and register to attend. (To register for the November open meeting, go to the Nov. 4–5 open meeting agenda.) PEEC is developing nonauthoritative guidance to further assist members with the application of the Code.

Until any proposed guidance is effective, members should remain cognizant that the Code’s overarching principles — public interest, integrity, objectivity and independence, due care, and scope and nature of services — apply to the provision of professional services, regardless of business model. Independence, specifically, is required when providing audit and other attestation services.

Members must maintain independence in both fact and appearance. Where the Code’s existing APS guidance does not directly address new structures — such as PE investors with significant influence but not control over the nonattest entity — members should apply the “Conceptual Framework for Independence” (ET §1.210.010) to assess threats and, where significant, implement safeguards.

Members should follow a multipronged approach when evaluating independence:

• Apply the “Alternative Practice Structures” interpretation when it is directly applicable.
• Use other interpretations of the “Independence Rule” as relevant, such as the “Network and Network Firms” interpretation (ET §1.220.010).
• Employ the “Conceptual Framework for Independence” in the absence of direct guidance.

In addition to independence requirements, members should also consider whether other areas of the Code apply to a relationship or circumstance, including conflicts of interest, confidential client information, and advertising standards, to ensure ethical compliance across all aspects of their professional services.

Transformations in business models, including APSs with PE investment, are expected to continue in the accounting profession. By adhering to the Code, establishing robust agreements, implementing strong quality management controls, and ensuring investor alignment with values and goals, firms can maintain public trust and audit quality in this changing landscape. The AICPA’s ongoing efforts to clarify and strengthen guidance and resources ensure that members are equipped to navigate the complexities of APSs.

— Kim Nilsen is senior director–Reputation & External Relations for the Association of International Certified Professional Accountants. To comment on this article or to suggest a topic for another article, contact JofA editor-in-chief Jeff Drew at Jeff.Drew@aicpa-cima.com.