A Review of Alternative Practice Structures and Compliance with Professional Standards

Around the world, accounting firms are increasingly moving away from traditional ownership models and adopting alternative practice structures (APS). Some of these structures involve investment from private equity firms. While private equity funding can support growth, technology investments, innovation, and succession planning, CPA firms must ensure that any APS complies with the Chartered Professional Accountants Act (the Act), the CPABC Bylaws, the CPABC Bylaw Regulations, and the CPABC Code of Professional Conduct (the Code).

The Act and Bylaws place restrictions on the ownership and control of professional accounting corporations and registered partnership firms that use the CPA designation. These requirements are intended to ensure that public practice CPA firms remain controlled by CPA members. Maintaining CPA control helps protect the public interest by ensuring that professional judgment is not influenced by individuals who are not subject to CPA regulation.

What Are Alternative Practice Structures?

An APS is any firm structure that differs from the traditional model where ownership and decision-making in a registered firm resides with one or more CPA members.

APS arrangements can take many forms. In some cases, they involve agreements that allow a non-CPA individual or organization to invest in a CPA firm and exert influence over its operations, finances, or strategic direction, even without having a formal ownership interest.

These structures can create risks to the public interest, including:

• Threats to CPA independence and objectivity
• Pressure to increase financial returns at the expense of service quality or accessibility
• Conflicts of interest where a non-CPA investor has interests in other businesses
• Public confusion about whether affiliated entities are regulated by CPABC

Clarified Guidance in the Code

To provide greater clarity to members and firms, CPABC has updated the Guidance to Rule 408 of the Code.

The guidance emphasizes that alternative practice structures must be designed in a way that protects the public interest and preserves the independence and professional judgment of CPA firms and their members.

In particular, an APS involving private equity investment or other non-registrant involvement may be inconsistent with Rule 408.1(a) if it allows a non-registrant to exercise significant influence over:

• The management of a registered firm;
• A related business practice; or
• The practice of public accounting by members of the firm.

The guidance also identifies circumstances in which an APS would generally be considered non-compliant. This includes arrangements that:

• Give non-registrants effective control of the firm;
• Impair, or appear to impair, the professional judgment, objectivity, or independence of the firm or its members; or
• Limit the firm's ability to comply with CPABC's governing legislation, bylaws, regulations, and the Code.

For this purpose, effective control means the ability to direct the affairs of the firm or make significant decisions on its behalf, whether directly or indirectly. Effective control may arise through voting rights, the appointment of directors, contractual arrangements, or other mechanisms that allow a non-registrant to influence the firm's operations or decision-making.

Before implementing an APS, members and firms should carefully assess whether the proposed structure complies with the Act, Bylaws, Regulations, and the Code. Failure to do so may result in:

• A public practice licence being refused or not renewed under Bylaw 903(d); and/or
• Disciplinary action against the firm or its CPA members.

Several other provisions of the Code may be relevant when evaluating an APS, including rules relating to objectivity, independence, conflicts of interest, and relationships with non-registrants. Should you have any questions, please contact professionaladvisory@bccpa.ca.