Parliamentary inquiry raises concerns about rise of private equity in accounting

Labor senator Deborah O'Neill and Liberal senator Paul Scarr have raised concerns about what impact the rise in private equity ownership of accounting firms may have on ethical and professional standards in the profession.

Speaking at a recent parliamentary joint committee hearing, O'Neill said the growing influence of private equity and foreign ownership in the accounting space had become an important issue, particularly following reports that Grant Thornton Australia was in negotiations to sell the business to its US counterpart.

Grant Thornton US is partly owned by New Mountain Capital, a private equity firm.

O'Neill questioned whether private equity ownership of accounting firms could create a conflict with accountants' ethical obligations, as financial performance may be prioritised over professional standards to meet investment expectations.

She also questioned whether accounting firms with private equity ownership should be subject to stronger disclosure, clearer oversight and additional ethical requirements than traditional partnerships.

CA ANZ chief executive Ainslie van Onselen said the professional body was actively monitoring the rise in private equity investment in accounting firms worldwide.

"There's been a rapid increase in the US, Europe and the UK and we're now seeing it on our shores," van Onselen told the Parliamentary Joint Committee on Corporations and Financial Services.

"The American Institute of Certified Public Accountants currently have consultation out [examining] that input in terms of ethics versus private equity and financial interests.

"What we have informed our members and will continue to do so is that our primary obligation as members is to adhere to APES 110 which is the code of ethics and so issues such as confidentially, integrity, competency and honesty, all still remain for that member, whilst they are a member of CA ANZ and if its a CA ANZ firm then it certainty attends to that as well."

Van Onselen noted that private equity investment can be beneficial for smaller and mid-sized practices as it can provide the capital needed for them to invest in technology such as AI.

Also speaking at the committee hearing, CPA Australia chief executive Chris Freeland acknowledged that the rise of private equity "throws up a number of tricky issues for the accounting profession".

"Having been a lawyer previously, I know this same issue was raised in the context of the legal profession about where does your duty lie? It's a tricky issue but there's a clear cut answer. The ethics do not change, the ethics obligations remain constant," said Freeland.

CPA Australia's chief of policy, standards and external affairs, Elinor Kasapidis, said CPA Australia was regularly engaging with the IFAC Small and Medium Practices Advisory Group, which was looking at the evolution of capital funding structures across the profession.

"The International Ethics Standards Board has also been conducting desktop research and we're involved in those projects," Kasapidis said.

"We don't prescribe how a firm might be structured. Our membership is focused on the individual CPA designation and the public practice certificate holders. We note that private credit, more generally, as well as private equity, is a challenge."

Kasapidis noted that the code of ethics requires accounting firms to have systems of quality management to manage conflicts of interest, regardless of their ownership structure.