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AICPA proposes independence rule changes for PE funding

March 10, 2025
in Accounting
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AICPA proposes independence rule changes for PE funding
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The American Institute of CPAs has issued a set of recommendations from a special task force on changing some of the independence rules related to alternative practice structures at accounting firms given the large number of deals involving private equity investments.

The recommendations come from an Alternative Practice Structures Task Force that was set up two years ago by the AICPA’s Professional Ethics Executive Committee. They’re in a discussion memo and the AICPA is asking for comments on the preliminary conclusions and two possible interpretation options. Feedback should be emailed to ethics-exposuredrafts@aicpa.org by June 15. The AICPA said last month it planned to revise the rules.

One of the revision options includes a specific private equity-related example, while the other is more general. Under both options, the draft interpretations would provide a three-step process:

  1. Determine which entities associated with the alternative practice structure are network firms, a term defined in the ethics code. Network firms are subject to independence requirements for financial statement audit and review clients.
  2. Determine which individuals associated with the alternative practice structure are covered members subject to independence requirements.
  3. Determine which additional relationships and circumstances associated with the alternative practice structure create threats to independence, and

    1. Identify relationships and circumstances where independence would be impaired.
    2. 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 closes, the committee intends to use the feedback to supplement its research and develop a formal exposure draft.

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