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Capital vs. control: PE’s impact on CPA firms

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Private equity’s growing presence in the accounting landscape has given rise to a substantial inflow of capital opportunities, empowering firms seeking to expand into new markets or deepen their presence in existing ones. Despite all the up-front benefits of non-bank lending, accountants can’t help but wonder about the true cost of going down this road.

Firms like Top 25 Firm Armanino LLP and Top 50 Firm Cohen & Co. have recently joined the ranks of the many who have taken on PE investments since 2021, when the deal between Top 25 Firm EisnerAmper LLP and PE firm TowerBrook Capital Partners set the stage for other investments to follow suit. While the idea of such a deal had been mulled over for several years beforehand, the investment in EisnerAmper is generally understood to be the first of its kind to come to fruition.

This year alone, EisnerAmper has used the funding to support four acquisitions: Tidwell Group, Edelstein & Co. LLP, Krost CPAs and Tighe, Kress & Orr PC.

Philip Whitman, CPA and CEO of advisory firm Whitman Transition Advisors LLC, said PE activity has only grown since that first investment, with 2024 being the year that investors have become more eager to invest in or partner with CPA firms.

“To date, our team has met with over 150 private-equity groups that have a desire to find foundational firms in the accounting/CPA firm arena. … Not a week goes by that I am not hearing a pitch or new thesis by at least three or four private-equity groups that are considering entering the accounting-firm space,” Whitman said. 

Read more: PE is rewriting the accounting playbook

While the money itself is a welcome addition for firms of various sizes, the conditions it could bring are less so — independence being the first such condition that could change following PE investments.

Firms that provide attest services must be majority-owned by licensed CPAs, but still allow for a minority stake to be owned by non-CPA entities. New York Governor Kathy Hochul signed a non-CPA ownership bill into law late last year, making New York the most recent state to allow “public accounting firms with minority ownership by individuals who are not CPAs to incorporate in New York State,” according to a press release.

As is often the case, PE transactions will result in a firm being divided into two entities, one owned by CPAs to oversee attest services, and the other wholly or part-owned by non-CPA private-equity partners that provide non-attest services such as tax, technology or consulting services.

Experts stress the importance of a clear distinction between which parts of a firm are owned by CPAs and which are not, both from a legal standpoint and a client relationship perspective.

“My understanding is that the PE firms have a bit of a workaround, with those employees and transferring income, but I feel that could be a very fine line or walking on thin ice,” said Stephen Mankowski, owner of the Pennsylvania-based accounting firm Mankowski Associates CPA. “Firms need to be independent both in fact and appearance. … The PE firms cannot have a relationship with any clients of the CPA firm.”

Even with those divisions, PE groups “putting tens or hundreds of millions of dollars into an organization will want a say” in how the broader organization is run, said Mark Masson, managing partner and head of the professional services at the Chicago-based Lotis Blue Consulting.

“It may look collaborative at first, but what does it look like six to 18 months in when you hit a bumpy patch?” Masson said.

Read more: Who will be in charge here?

Firms that can navigate those dilemmas gain access to a pool of investors hungry to dive into the world of accounting, promising vast funding for M&A strategies, technology investments, and.

“PE has raised the ‘performance bar’ for CPA firms by moving them from a ‘country club’ culture to a ‘country’ culture. … Specifically, they have instilled a culture of greater accountability (less autonomy) and hence a higher-performing firm over the ‘hold’ period,” said Allan Koltin, CPA and CEO of Koltin Consulting Group. 

Read on to learn more about the growing presence of PE in the accounting profession, and how experts are keeping a close eye on the promises and pitfalls of new investment activity.

Allan Koltin at the 2024 Accounting Today PE Summit

Allan Koltin at the 2024 PE Summit

The unequal impact of private equity in accounting

The influence of private equity and the much-needed capital it brings has been steadily growing across the accounting profession over the last few years. But seasoned professionals say that while it works for some, it’s not a cure-all.

“Private equity is not a silver bullet,” Allan Koltin of the Koltin Consulting Group told attendees at Accounting Today’s inaugural PE Summit, held in late November. “If you don’t do PE, that doesn’t mean you won’t be successful. But you do need to figure out what you’re going to do” to solve the issues of access to capital and resources that PE deals help with.

The values of PE are seemingly only an option for the higher-earning firms, Koltin explained, as the scrutiny of PE firms where earnings reviews are concerned is a high bar to clear.

“It seems like a lot of deals have happened, but believe me, the same number or more have died,” Koltin explained. 

Read more: Private equity isn’t a silver bullet

Private equity concept - single person rolling a giant coin

The private equity changeup in accounting career pathing

Private-equity investments, outside the obvious capital benefits, are repathing traditional career tracks across the accounting profession, according to a recent report.

The Accounting MOVE Project says PE is “challenging long-established firm structures” and “raising significant questions about the future of ownership models and their impact on career development,” according to a report it recently published. The report was co-sponsored by the Accounting & Financial Women’s Alliance and Top 100 Firm Moss Adams.

Career pathing has been a particular point of contention for many firms seeking to enlist fresh talent amid a growing shortage of new graduates. The report goes on to explain how PE buyers use structured opportunities for advancement within firms to incentivize retention.

Read more: Private equity changes accounting career paths

Allan Koltin (center) at the 2024 AICPA Executive Roundtable

Allan Koltin (middle) at the 2024 AICPA Executive Roundtable

Private equity is the beginning of a new era. Is it a good one?

Accounting has undergone numerous changes over the last four years, as private-equity firms have continued to grow in scale and number throughout the profession. Experts like Matthew Marinaro, a principal at PE firm Red Iron Group, say if this trend were likened to a baseball game, “We’re in the second or third inning.”

These partnerships have become prevalent in various forms, according to Allan Koltin, speaking at the AICPA Executive Roundtable in New York in September.

Models include instances of PE firms acquiring a piece of a Top 25 Firm to then provide capital for buying up smaller Top 500 firms, as well as more broad purchases of Top 30 to Top 100 accounting firms by middle-weight PE players.

Read more: PE is just the start of the changes coming for firms

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Revenue quality — not just quantity — is key

Those at the heart of the growing trend of M&A in accounting say recurring revenue is an important factor in any private-equity deal, but it’s revenue quality over quantity that will win out in the end.

One such person is Jason Slivka, a corporate development partner with Top 25 Firm Citrin Cooperman. His firm has executed at least seven notable acquisitions this year alone, including Coleman Huntoon & Brown PLLC, Mibar, Maier Markey & Justic LLP, S&G LLP, Teplitzky & Co. PC, Signature Analytics and Clearview Group — all stemming from funding it received in 2021 from New Mountain Capital.

While speaking at the Scaling New Heights conference in Orlando, Florida, this year, Slivka explained that his “holistic” approach to evaluating possible acquisitions starts with culture, then works its way outwards towards financial metrics.

“We will want to understand how they have managed their business throughout its course, so we can understand its culture and people,” he said.

Read more: Private equity in M&A looking at revenues, but not just any revenues

Private equity concept art

The private equity ‘revolution’ comes with risks

Private equity is having its moment in wealth management and accounting, following a significant drop off in deal activity by volume and value in 2023 when compared to the prior year. Experts remain wary, however, that capital options from nonbank entities could yield unforeseen risks.

In Top 100 Firm Cherry Bekaert’s most recent annual report on leveraged buyout deals, experts highlight how the higher interest rate environment present over the last few years drove up capital costs and pushed many towards alternative funding sources. This growth in the private-credit market has positioned PE firms as “the primary drivers of private credit consumption” but haven’t alleviated concerns of a growing PE bubble, the report said.

“As investments have begun to take shape and private equity demonstrates its ability to drive transformational growth and improve financial performance in people-heavy businesses, the hesitation has become less concerning,” the report said. “CPA, consulting and wealth management firms appear to be in the midst of a private equity-backed revolution.”

Read more: Private equity ‘revolution’ brings risks to wealth and accounting

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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