The State Board executive director agrees that while it does seem PE firms understand there are certain rules that have to be followed, it’s less certain “they understand the public protection mandate CPAs have been steeped in throughout their training.” Bosher, however, says he’s not sure the culture ascribed to PE is all that different from the motives and incentives from other enterprises. Some of the fears, he notes, are based on misleading headlines and poor reporting. “PE buys accounting firm—that’s not happening. PE invested directly in a licensed accounting firm—that hasn’t happened as far as I know. Accounting firm adopts alternative practice structure to avoid independence requirements—that’s not what’s happening. In the models I’ve worked on, the outside investors are fully aware they can’t interfere or be involved in attest work. Attest work is separate and there are guardrails so that integrity and independence are not impaired.” No matter the anxiety or confidence one has, the range of concerns private equity provokes has been a central focus for the Professional Ethics Executive Committee, or PEEC,5 a senior committee at the American Institute of Certified Public Accountants (AICPA) on which Allen serves. The committee is charged with “interpreting and enforcing the AICPA Code of Professional Conduct, promulgating new interpretations and rulings, and monitoring those rules and making revisions as needed.” In 2023, PEEC began examining the intersection between private equity and accountancy firms, focusing particularly on potential threats to independence and public protection. “We wanted to know if we should change the code of conduct [in light of the PE trend],” Allen says, “and the conclusion we came to is: Yes, we probably should.” In her talk6 at NASBA’s Eastern and Western Regional meetings this past summer, Allen inventoried three areas that PEEC has been evaluating: 1. whether employees from the non-attest entity should abide by AICPA independence rules when performing non-attest services for the attest firm’s clients; 2. which PE members should be subject to full or partial independence restrictions; and 3. the potential dangers of PE interests (e.g., portfolio companies, funds), or the investors themselves, becoming attest clients of the non-attest firm in which they now have a share. Allen says PEEC will be evaluating proposed revisions to the AICPA Code, which represents the first phase of PEEC’s project on private equity. If approved, an exposure draft will be released for comment later this year. One additional question the State Board executive director has is how forthcoming guidelines—be they from PEEC or elsewhere—could impact private equity’s decision to invest in firms or change how deals are structured, if for example, the attest entity creates independence issues to the point PE stakeholders feel the need to end attest services. Such moves could be just as imperiling for accounting firms—and ironically for the same bottom-line reason firms sought PE funding in the first place. However, the alternative, says the executive director, may be even less appealing: “That the attest entity is retained but feels a pressure to ‘stretch’ the rules.” Part of the anxiety from all sides is that the frameworks being forged around private equity and accounting firms—both financial and in terms of oversight—are still somewhat amorphous. Such a state is uncomfortable to regulators, for good reason. While the State Board executive director acknowledges that it’s unrealistic to expect PE firms to suddenly develop a CPA’s understanding of public protection, “giving them clear rules that must be followed will assist them and the regulators in making sure the public is protected. The regulatory response has been lagging because I feel we’ve been working on other issues. But it’s now starting to pick up with the PEEC discussions and the discussions at NASBA.” What would reassure the director and possibly other regulators is “addressing what I think are the two major concerns regulators have: PE’s potential to lower the quality of services, and public confusion about the PE-based firm they’re now interacting with.” Those, the director said, could and should be resolved by a combination of clear best practices, revisiting the AICPA code, and adjusting model statute language. The director adds that there are issues that are specifically regulatory related that are not being addressed by PEEC that could also benefit from a NASBA committee or task force. “The concept of a business corporation investing in the non-attest assets of a public accounting firm has been around for more than 25 years,” says Dan Dustin, CEO of NASBA and a CPA himself. He cites the 1998 case of American Express Tax and Business Services purchasing CONTINUED FROM PAGE 23 24 Nebraska CPA
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