top of page
logo

Private Equity, AI and New CPA Rules: What They Mean for Choosing an Accountant

Writer: naseem smairat
naseem smairat
Oct 30
7 min read

Updated: 5 hours ago

The firm that prepares your tax return or reviews your financial statements may not be the firm it was two years ago. In August 2026, funds managed by KKR completed an investment in Crowe Advisory LLC, a new entity that now holds the tax and advisory work formerly inside Crowe LLP, one of the 20 largest U.S. accounting firms. Crowe LLP kept the audits and reviews. In June, Eide Bailly, another top-20 firm, announced an investment from Reverence Capital Partners. Regulators and standard-setters are responding. On Nov. 3, the AICPA announced that its Professional Ethics Executive Committee (PEEC) had approved a revised exposure draft of ethics and independence rules for investor-backed firms. The Public Company Accounting Oversight Board (PCAOB) amended its new quality-control standard on Sept. 9, and the SEC approved those changes on Nov. 2. In June, the IRS Office of Professional Responsibility issued introductory guidelines on using artificial intelligence in tax practice.


For a small business, these shifts show up in four places: independence, quality, fees and the handling of its data.


What is changing

Private equity has reached the top tier. The CPA Trendlines deal tracker counts about 470 accounting firms acquired through sponsor-backed platforms since 2016, representing roughly $49 billion in enterprise value through May 2026. Grant Thornton, Baker Tilly, CohnReznick, Cherry Bekaert and Wipfli are among the large firms that have taken outside capital. The pace may be easing. Going Concern reported on Oct. 28 that the tracker's October update showed 37 acquisitions in the U.S. and Canada in the third quarter of 2026, down from 42 a year earlier.


Most deals use what the profession calls an alternative practice structure. State accountancy laws generally require firms that issue audit and review reports to be majority-owned by CPAs. So the investor buys the tax and consulting business, and a separate CPA-owned firm keeps the attest work. Crowe's arrangement follows this model: the two entities serve the same clients and remain in the same network.


Ethics rules are catching up. PEEC released a first exposure draft on these structures in December 2025. After public comments, the committee discussed further changes in August 2026, including a revised definition of "network firm" and a new interpretation that would bar attest clients from investing in firms. On Nov. 3, 2026, the AICPA announced that PEEC had approved a revised exposure draft, with a 120-day comment period that begins once the draft is posted on the AICPA website. None of this is final.


AI is becoming routine, and the rules already apply. In a June 2026 survey of more than 1,000 tax professionals by Blue J, an AI vendor, and CPA.com, an AICPA subsidiary, 60% said they use AI for tax research at least weekly, up from 33% a year earlier. Because the sponsors have a commercial stake in AI adoption, the figures are best treated as directional. Introductory guidelines that the IRS Office of Professional Responsibility issued June 24 said the existing Circular 230 rules govern AI use. Practitioners must review AI output before relying on it. Client data should go only into secure, firm-approved systems, because disclosure penalties under Sections 6713 and 7216 still apply. And billing full manual time for work that AI shortened may raise concerns under the ban on unconscionable fees. An August Journal of Accountancy article reminded CPAs that the confidentiality and due-care rules apply to AI tools, and that responsibility for the final work product stays with the CPA.


On the audit side, the PCAOB came under new leadership in February 2026, and AI dominated public comments on its standard-setting agenda. PwC wrote that "the use of AI by companies and auditors should be the board's foremost priority."


Quality-control standards are tightening. The AICPA's quality management standard, SQMS No. 1, took effect Dec. 15, 2025, for firms that perform audits, reviews, compilations and similar engagements under AICPA standards. Firms must complete their first evaluation of their system within a year, by Dec. 15, 2026. For auditors of public companies, the PCAOB's QC 1000 takes effect Dec. 15, 2026. The Sept. 9 amendments, which the SEC approved on Nov. 2, remove some requirements, including the external quality-control function.


The talent pipeline is improving slowly. By January 2026, 25 states had created an alternative to the 150-credit-hour rule, typically a bachelor's degree plus two years of experience and the CPA Exam, and industry leaders expected more states to follow during 2026. The model law now ties a CPA's ability to practice across state lines to individual qualifications. Enrollment in four-year accounting programs rose 8.9% in spring 2026, to 205,180 students, according to an AICPA analysis of National Student Clearinghouse data. NASBA reported that 87,660 candidates took the CPA Exam in 2025, including 36,590 new candidates, and the Journal of Accountancy reported that first-time candidates in 2025 reached their highest level since 2018. The shortage that left many small businesses waiting for return calls has not ended, but supply is growing.


What it means for small businesses

Independence has become a structural question. A business that needs an audit or review for a lender, surety, franchisor or investor needs an attest firm that is independent of it. In an alternative practice structure, the CPA-owned attest firm and its investor-backed sister may both serve the same client, and the investor may own other businesses. Until PEEC finishes its work, each firm's own policies carry much of the weight. Clients should know which entity signs the report, which entity does their tax, bookkeeping, payroll or consulting work, and whether the firm has evaluated those other services for independence.


Quality and continuity can cut both ways. Outside capital can pay for technology, specialists and training. Consolidation can also bring staff turnover, office closings, new minimum fees and a different relationship partner. Firms that perform audits, reviews or compilations are generally subject to peer review, and a client is entitled to ask for the most recent report.


Pricing is in flux. Investors underwrite these deals expecting growth, so clients should expect firms to look harder at pricing, minimum engagement sizes and which services they bundle. In the Blue J and CPA.com survey, 69% of respondents expected to move toward value-based, hybrid or fixed-fee billing. The IRS guidelines' discussion of fees gives clients a reasonable basis to ask how AI efficiencies show up on their invoices.


Data security is a legal obligation, not a courtesy. An IRS Office of Professional Responsibility article published July 22, 2026, notes that tax return preparers are treated as financial institutions under the Federal Trade Commission's Safeguards Rule and must maintain a written information security plan. IRS Publication 5708 offers a template. AI adds a new exposure: some public AI tools use what users type to train future models, so client data entered there could resurface. Separately, Section 7216 generally requires a taxpayer's written consent before a preparer uses or discloses tax return information for purposes other than preparing the return.


What to do now

The practical response is a short, documented conversation with the firm, ideally before the January-to-April filing season.


  • Get the structure in writing. Ask for a plain-language description of the firm's ownership and which legal entity performs each service. Make sure the engagement letter names the right entity.

  • Confirm independence for attest work. If you receive an audit or review, ask the firm to confirm in writing that it has evaluated every other service it or its affiliates provide to you. (A compilation does not require independence, but the report must disclose any lack of it.) Repeat this whenever the firm announces a transaction.

  • Request quality evidence. Ask for the latest peer review report and whether the firm has completed its SQMS No. 1 evaluation, due by Dec. 15, 2026.

  • Ask about AI. Which tools touch your data? Are they approved, enterprise-grade systems? Who reviews the output? Ask for those answers to be reflected in the engagement letter.

  • Probe data handling. Ask whether the firm has a written information security plan, uses multifactor authentication on client portals, relies on third-party or offshore service providers, and how and when it will notify you of a breach. Read any Section 7216 consent form before signing it.

  • Clarify fees. Ask how fees are set, how much notice the firm will give of increases, and what happens to your records if you leave.

  • Verify credentials. Check the license of each CPA on your engagement with the state board or NASBA's CPAverify database, especially if the practitioner works from another state.

  • Keep the file. Retain engagement letters, independence confirmations, security answers and consent forms. Lenders, insurers and successor advisers may ask for them.


Watch for PEEC's revised exposure draft to be posted, which starts its 120-day comment period. Businesses that rely on audited or reviewed statements have a direct stake in how these rules are written.


Sources


This article is general information, not tax, legal, or accounting advice. Consult a qualified professional about your situation.

Comments

bottom of page