The Big Money Red Flag: IESBA Warns Accountants on Private Equity Pitfalls
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Private equity (PE) is changing the rules of the game for accounting firms. Instead of partners slowly buying into the business over decades, PE investors bring a cash injection upfront—often paying partners two to four times what they might otherwise earn. In return, they take a significant stake in the firm and help drive rapid growth, tech upgrades, and strategic acquisitions.
The trend kicked off in the U.S. around 2021, when firms like EisnerAmper and Citrin Cooperman accepted PE backing. Since then, more than a dozen leading firms have joined the wave, many of them not just meeting, but exceeding growth targets and scaling up fast through even bigger deals.
It sounds exciting, and in many ways, it is. But it also raises some serious ethical red flags.
That’s why the International Ethics Standards Board for Accountants (IESBA) has stepped in. In a July 2025 Staff Alert, IESBA cautions firms to tread carefully. Accepting PE funding could impact independence, integrity, and public trust, cornerstones of the profession. If you’re considering private equity investment for your firm, here’s what you need to know.
What’s the Concern?
Private equity brings cash and growth potential, but also real ethical and independence risks that could harm your firm’s credibility.
According to the IESBA alert (July 2025), these risks don’t just show up during the deal. They can evolve long after the ink is dry.
Key Red Flags for Accountants:
Conflicts of Interest
If a PE firm owns both your practice and one of your audit clients, you could breach independence rules.
🔴 For Example:
A PE firm owns a stake in both your accounting firm and a retail chain you audit. This creates a direct threat to independence under the IESBA Code.
Network Confusion
When PE-backed firms merge, it can blur the lines of who’s part of your network under the IESBA Code.
🔴 For Example:
A firm in Johannesburg is merged into a PE-backed platform with offices in London. Suddenly, you may be considered part of an international network, with global independence rules applying.
Independence Erosion
PE staff involved in business decisions may be seen as influencing audits—even if they don’t touch the files.
🔴 For Example:
A PE board member suggests changing the firm’s pricing structure or client mix. This could be interpreted as influencing audit engagements.
Cultural Drift
Fast-paced growth, cost-cutting, and new KPIs can slowly shift a firm’s values without anyone noticing.
🔴 For Example:
KPIs shift from client service to billable hours only, and ethical red flags start being ignored in favour of "hitting targets."
What Should Firms Do?
IESBA says it clearly: apply the Code, always. PE investment is not a loophole or excuse. Appoint an internal ethics officer or designate a senior partner to regularly review potential conflicts and independence breaches post-deal.
✔️ Monitor continuously – not just pre-deal, but as the business grows and changes
✔️ Evaluate independence rigorously – especially for review and audit clients
✔️ Reinforce firm culture – ethics and public interest must remain front and centre
✔️ Disclose relationships – don’t let hidden links trip up your team later
Bottom Line
Private equity can fuel innovation and scale—but without ethical guardrails, it can also unravel trust. Don’t let your firm trade independence for investment.
