Boards have acknowledged the model. And this model can be implemented in a way that is wholly compliant with regulations. Whether every party engaged in this model will always implement it correctly, I can’t say for sure. But I can say I think the basic model itself is compliant. And of course,” he notes, “I expect State Boards of Accountancy to ask questions about alternative practice structures. Regulators will be looking to see if parties are confusing the public. I assume regulators will also rely on peer reviewers. Peer reviewers are a big part of how firms are monitored and evaluated. But in my experience the parties engaged in this space are all very much trying in good faith to comply with the regulatory rules and expectations.” Bosher says when he talks to PE firms these days, they understand they cannot be involved in the attest practice. Alternative practice structures are also not established in isolation. They’re typically reified by disclosures and disclaimers to clients so that those who receive the services of the non-attest entity know what they’re getting—or not getting, as the case may be. “In my experience,” Bosher says, “these firms have gone out of their way to avoid public confusion. There’s generally explicit and clear disclosure language in relevant client materials.” The State Board executive director is not so sure, however, noting that when private equity purchases a stake in a firm, large or small, there is often very little to notify the public that it’s no longer dealing with a CPA firm. “Especially when the firm still maintains one website and a single letterhead. The bedrock of accountancy regulation is that no one can hold out as a CPA firm without being licensed. If notification to the public is limited to a long disclosure at the bottom of a webpage, few will read that. As such, the protections that the public will assume they have are no longer there. Individuals will call Boards like ours with complaints and they’ll struggle to understand why we can assist if it was a bad audit but not a bad tax return.” For many regulators, there are still grey areas within an alternative practice structure. Beyond disclosures and disclaimers, can a perception of influence by the non-attest entity over its attest counterpart ever be dispelled? Also, are there enough bright lines so that what might inform, say, an individual accountant’s bonuses and compensation does not undermine his or her ethical obligations? Bosher notes two issues where the rules or guidance are inconsistent across states. If you’re a non-attest CPA leased back to the attest firm, who is your employer? The second is whether in an alternative practice structure an individual CPA who works in the non-attest firm can still hold out as a CPA. Some states say that an individual may not. Bosher says he has First Amendment concerns about the latter issue, not to mention the public policy concerns of telling those who have earned a CPA license that they can’t present themselves as one. In both cases, he says there may be an opportunity for regulators to clarify. “But I think we all need a high-level acceptance that this model is here, has been here, and is here to stay. The work is to take the model and provide clarity where there is still regulatory ambiguity or inconsistency.” Allen points out, however, that these aren’t the only sources of murkiness when PE enters the equation. “The company culture is likely to change,” she explains, “as will the systems in decision-making,” both of which she notes could be impacted by the significant lack of expertise PE typically has when it enters the accounting world. “PE often experiences shock at what regulatory compliance requires. It’s a totally new language for them.” She also cites the short-termism of PE as a long-term concern for regulators and the profession. Because private equity is known for its volatility, the idea of an accounting firm changing hands—perhaps changing often—is not implausible. What effect might that have on integrity and public protection? CONTINUED ON PAGE 24 23 nescpa.org
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