Alternative Practice Structures in Accounting, Explained

An alternative practice structure (APS) is a form of organization in which a licensed CPA firm that provides attest services operates in close alignment with a separate entity that performs non-attest professional services. The attest firm stays under CPA majority ownership to satisfy state licensure laws, while the non-attest entity can accept investment from outside parties, including private equity. These two entities share branding, people, systems, or contractual arrangements under a services agreement, but the attest firm retains complete, independent control over audit and other attestation work.

The APS model has become the dominant vehicle for private equity to access the accounting profession, and understanding how it works matters for CPA firms weighing outside investment, for clients whose firm announces a restructuring, and for finance leaders evaluating whether their audit firm’s independence remains intact.

Why Alternative Practice Structures Exist

State accountancy laws across the country require that a majority of the ownership interests in a CPA firm, measured by both financial interest and voting rights, must be held by licensed CPAs. That rule has existed for decades to protect the public interest: audit and attestation opinions carry legal weight, and regulators want the professionals signing those opinions to bear professional accountability.

The restriction created a structural problem as private equity became interested in accounting’s recurring-revenue, fee-based business model. A PE fund cannot own a CPA firm outright without tripping the ownership rule. The APS framework resolves this tension by splitting the practice into two separate legal entities:

• The attest entity: A CPA-owned and CPA-controlled firm that provides audit, review, compilation, and other attestation services. State licensing requirements, the AICPA Code of Professional Conduct, and, where applicable, PCAOB or SEC rules govern this entity.
• The non-attest entity: A services company that provides tax, advisory, client accounting services, consulting, and back-office functions. This entity can accept outside investment from non-CPAs, including PE sponsors, as long as applicable independence obligations flow through to the investors.

A services agreement binds the two entities. Under that agreement, the services company typically provides the attest firm with professional staff, office space, technology, billing and collection support, and other administrative functions in exchange for a management fee. Both entities may share a brand name, but the services company cannot hold itself out as a licensed CPA firm or sign attestation reports.

The AICPA’s Code of Professional Conduct formally addresses this arrangement in the “Form of Organization and Name Rule” and its “Alternative Practice Structures” interpretation at ET Section 1.810.050. The AICPA’s Professional Ethics Executive Committee announcement on APS ethics revisions points practitioners to the current interpretation and the proposed updates now under review.

The Attest and Non-Attest Split: What It Means in Practice

The attest and non-attest split is the conceptual foundation of every APS. Understanding which services fall on which side is essential for the CPA firm, its investors, and its clients.

Attest services (CPA-firm side)

Attest services include any engagement where the practitioner issues a formal opinion or conclusion based on defined criteria:

• Financial statement audits
• Reviews and compilations
• SOC 1 and SOC 2 engagements
• Agreed-upon procedures
• Other attestation engagements under AT-C standards

All attest work must be supervised and signed by a CPA owner of the attest firm. No representative of the non-attest entity or outside investor may direct, supervise, or override attest-related decisions. The CPA firm controls client acceptance and continuance, engagement team assignments, and the substance of every opinion issued.

Non-attest services (services company side)

Non-attest services are everything else: tax compliance and planning, advisory, outsourced CFO, financial modeling, bookkeeping, payroll, technology consulting, and transaction support. These services generate substantial, scalable revenue and are the economic engine that private equity investors are primarily buying. For mid-market clients, advisory and accounting services often dwarf audit fees in total spend with a single firm.

Why the boundary matters

The boundary is not just administrative. If a CPA provides non-attest services to an audit client, independence rules require the firm to evaluate whether those services impair independence. The attest and non-attest split in an APS does not eliminate those concerns; it reframes them. AICPA guidance makes clear that the independence rules governing the attest firm extend, at least to some degree, to the services company and its owners, including PE investors.

Independence Rules in an APS CPA Firm

Independence is where APS structures carry real complexity. The AICPA’s Professional Ethics Executive Committee (PEEC) first issued guidance on APSs in the early 2000s, long before private equity became a significant participant. That original framework was not designed to handle situations where a PE fund holds majority economic interest in the services company and exercises governance rights that could indirectly influence the CPA firm’s operations.

The existing rules establish that:

1. All covered members of the attest firm, including the firm itself, are subject to the Independence Rule in its entirety. A covered member may not hold a direct financial interest in an attest client, regardless of whether that interest is held through the services company.
2. The conceptual framework for independence applies wherever specific guidance does not exist. When the services company’s ownership or governance structure creates a threat to independence, the CPA firm must evaluate the threat’s significance and implement appropriate safeguards.
3. SEC and PCAOB rules add a further layer for firms that audit public company clients. Under SEC Regulation S-X Rule 2-01(f), the definition of “accounting firm” reaches the firm’s parents, subsidiaries, and associated entities, which can subject the entire affiliated organization to auditor independence requirements.

In December 2025, PEEC released an exposure draft, “Proposed Revisions Related to Alternative Practice Structures,” open for public comment through April 30, 2026. The proposal is the most substantial update to APS ethics guidance since the original interpretation was adopted. Key proposed changes include:

• Distinguishing between an investor’s “significant influence” and “control” over the non-attest entity, and specifying how each level of influence affects independence analysis.
• Expanding the definition of “network firm” to include entities that control, or are controlled by, a network firm, where those entities cooperate to deliver professional services.
• Updating the Conceptual Framework for Independence to address new categories of investor relationships.

If the exposure draft is finalized and adopted, the resulting standards would take effect one year after adoption, with earlier voluntary application permitted. CPA firms currently operating in an APS should monitor these developments closely, as summarized in the Journal of Accountancy coverage of the proposal, and confirm their services agreements and governance documents remain compliant under any new interpretation.

Why Private Equity Has Accelerated APS Adoption

The APS framework has existed for decades but was rarely used outside of a handful of niche arrangements. That changed rapidly starting around 2022, when PE funds identified accounting as an attractive consolidation target: predictable recurring revenue, high client retention, pricing power, and scalability through technology.

Industry deal trackers show the acceleration clearly. The CPA Trendlines PE Deal Tracker recorded 183 private-equity-backed accounting transactions in 2025, up from 76 in 2024 and 47 in 2023. As of early 2026, industry data indicates that financial acquirers account for more than half of all accounting firm mergers and acquisitions by deal count, a share reported at roughly 55 percent. These figures are industry estimates from deal trackers rather than codified regulatory data, but the direction is unmistakable.

A frequently cited transaction is Blackstone’s January 2025 acquisition of a majority stake in Citrin Cooperman from New Mountain Capital, a deal that valued the firm above $2 billion. It was widely reported as the first time a top-tier US accounting firm changed hands from one private equity sponsor to another.

The economic logic from the PE perspective is straightforward: invest in the non-attest services company, use that capital to hire, acquire, and build technology infrastructure, and benefit from the revenue generated across tax, advisory, and consulting lines. The CPA firm providing audit services is a separate legal entity, but it often shares staff, systems, and a brand with the services company, making the combined offering attractive to clients.

For mid-market businesses evaluating audit providers, the implications include:

• Stability and investment: PE-backed firms may invest more heavily in technology and staffing, which can translate to better service delivery and faster turnaround.
• Independence monitoring: Clients should confirm that their audit provider has rigorous independence policies in place and that the APS structure does not create prohibited relationships.
• Contractual clarity: Engagement letters should clearly identify the licensed CPA firm issuing the opinion, not just the parent brand.

What Clients Should Ask Their APS Audit Firm

When a client’s audit firm announces a restructuring into an APS or discloses PE investment, the right questions are practical and specific.

On governance and control:

• Who are the owners of the attest firm, and do CPAs hold the required majority interest?
• Does the services company or any investor have decision-making authority over audit engagement acceptance, staffing, or conclusions?

On independence:

• Has the firm assessed whether any investor relationship creates a prohibited financial interest or business relationship with our company?
• How does the firm monitor independence on an ongoing basis as the PE firm’s portfolio evolves?

On the services agreement:

• What services does the attest firm purchase from the services company, and at what terms?
• If we use both audit and advisory services, which entity provides each service, and has independence been assessed for the non-attest services?

For CFOs and controllers managing an audit and assurance relationship, these questions are not bureaucratic. A lapse in independence can invalidate an audit opinion and trigger regulatory consequences for public companies and certain regulated entities.

The Evolving Regulatory Landscape

State boards of accountancy are the primary regulators of CPA firm ownership and structure, and they have not taken uniform positions on APS arrangements. Some states have issued specific guidance permitting APS structures, while others require pre-approval or notification before a firm restructures. California’s Board of Accountancy, for example, addressed APS at a 2025 committee meeting, reflecting increased scrutiny at the state level.

At the national level, the AICPA PEEC exposure draft represents the clearest signal that existing guidance needs modernization. The proposed revisions recognize that the original APS interpretations assumed relatively passive, limited investment relationships, not the integrated, multi-entity platforms that PE sponsors are building today.

For firms auditing SEC registrants, the toughest independence requirements come from the SEC and the PCAOB rather than the AICPA. The SEC’s independence rule at Regulation S-X Rule 2-01(f) defines an “accounting firm” to include the firm’s parents, subsidiaries, and “associated entities,” and the PCAOB applies these requirements to registered firms. In a PE-backed APS, that broad definition can pull the services company, the PE fund itself, and portfolio companies that are also audit clients into the independence analysis. You can review the current text of the rule through the SEC’s Regulation S-X Rule 2-01.

Firms and clients alike should expect continued regulatory activity in this area through 2026 and beyond. The APS model is here to stay, but the rules governing it are still being written.

Related reading: Accounting Offshoring vs. Outsourcing: What’s the Difference?

Frequently Asked Questions

What is an alternative practice structure in accounting?

An alternative practice structure (APS) is a business arrangement in which a licensed CPA firm that performs attest services operates alongside a separate services company that performs non-attest work such as tax, advisory, and consulting. CPAs must hold a majority ownership interest in the attest firm, while the services company can accept investment from non-CPA parties, including private equity. The two entities are linked by a services agreement and typically share branding and staff.

What services must stay inside the CPA-owned attest firm?

All services that result in a formal attest opinion must be performed by and supervised by the licensed CPA firm. This includes financial statement audits, reviews, compilations, SOC 1 and SOC 2 engagements, agreed-upon procedures, and other attestation engagements under AT-C standards. Non-attest services such as tax compliance, bookkeeping, and advisory can sit in the services company.

Does private equity investment in a CPA firm affect audit independence?

Yes, potentially. Independence rules applicable to the CPA firm extend to the services company and its owners, including PE investors. If a PE fund holds an interest in both the services company and an audit client’s stock or other financial instruments, that relationship must be evaluated against the Independence Rule. The AICPA’s PEEC is currently revising APS independence guidance, with an exposure draft open for comment through April 30, 2026.

Can a non-CPA own the attest firm in an APS?

Under AICPA rules and most state accountancy laws, a majority of the ownership of the attest firm, in both financial interest and voting rights, must belong to licensed CPAs. Non-CPA owners may hold minority interests in some states, but they must generally be actively engaged in the firm or its affiliates. Pure passive investment by non-CPAs in the attest entity is not permitted under the AICPA’s Form of Organization and Name Rule.

How is an APS different from a traditional CPA firm?

A traditional CPA firm is fully owned by CPAs and performs both attest and non-attest services under a single organizational structure. An APS separates those functions into two distinct legal entities, allowing outside capital to invest in the non-attest side while leaving the attest firm in CPA hands. The practical difference for clients is largely invisible day-to-day, but the governance, ownership, and independence analysis are substantially more complex.

What should clients do if their accounting firm restructures into an APS?

Clients should request written confirmation of which legal entity will be providing their audit or attestation services, confirm that CPAs hold the required majority interest in that entity, and ask the firm to document how independence has been assessed in light of the new structure. For clients receiving both attest and non-attest services from the same firm or affiliated entities, a clear engagement letter identifying the service provider for each work stream is essential.