AICPA proposes changes to independence guidelines related to private equity

The AICPA Professional Ethics Executive Committee (PEEC) voted Dec. 19 to issue the exposure draft of Proposed Revisions Related to Alternative Practice Structures, which features updated guidelines related to independence and private-equity investments.

“These changes aim to uphold the integrity of the profession while offering practical guidance for firms operating in alternative organizational structures,” states the exposure draft. The ED will be open for public comment until April 30.

The ED incorporates feedback from a discussion memorandum on the same topic that a PEEC task force circulated for comment earlier this year.

According to a news release, although independence guidelines have addressed alternative practice structures (APSs) for decades, the increased prevalence of private-equity investment in the profession calls for updated interpretations. The ED identifies relationships and circumstances that could impair independence, addresses factors for evaluating threats, and suggests potential safeguards where appropriate.

Among other items, PEEC seeks comment on:

• A new version of the independence interpretation related to APSs, which describe attest firms that are closely aligned with a nonattest entity partly owned by investors. The proposed revisions to the AICPA Code of Professional Conduct would distinguish between “significant influence” and “control” by investors over nonattest entities, with guidance on how these terms affect independence assessments.
• Revisions to the “Alternative Practice Structures” interpretation under the “Form of Organization and Name Rule.”
• Revisions to the “Conceptual Framework for Independence” interpretation, a key assessment tool for complex APS situations.
• Revisions to the “Conceptual Framework for Members in Public Practice” interpretation.
• Revisions to the definition of “network firm,” a term in the Code of Professional Conduct that refers to entities subject to independence requirements for financial statement audit and review clients. The new definition would include “an entity that, by itself or through one or more of its owners a. the network firm controls, or b. controls the network firm and cooperates with the network firm for the purpose of enhancing that network firm’s capabilities to provide professional services.”

The proposed updates, if approved, would be effective one year after adoption, although firms could implement them earlier.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at Bryan.Strickland@aicpa-cima.com.