January 1999 Issue

ALTERNATIVE PRACTICE STRUCTURES

The traditional CPA firm, performing the full range of services that CPAs offer to the public, is being tested. Is it the best form to use when offering personal financial planning, tax or business consulting, and even tax return preparation services? Should only the services for which CPAs and CPA firms are regulated be performed by those working in CPA firms? These are the questions being raised by the emergence of alternative practice structures (APS) as employed by American Express Tax & Business Services (TBS) and HR Business Services (part of H&R Block).

Under an APS, an acquired CPA firm is split into two pieces. Regulated services--audits, reviews, compilations, attestation services, WebTrust^SM, and the like--are performed by the CPA firm from which the practice was acquired (or a successor partnership). Nonregulated services--tax return preparation and all the consulting services--are performed by the acquiring entity or a subsidiary of the acquiring entity.

There are other structures that combine CPA firms and other professional entities to form one-stop shopping malls for individuals and businesses. These structures are testing the necessary safeguards to ensure independence between the clients of the CPA firm and the other entities that are providing services to the clients.

The Independence Issues Committee has been looking into the matter at the request of the SEC. At its November meeting, it failed to reach the necessary five votes to move the issue to the agenda of the Independence Standards Board. But in the meantime, public clients of firms operating under an APS will have to assure themselves that their CPA firm is independent under existing SEC rules and regulations.

The AICPA Professional Ethics Committee in 1998 issued proposed guidance as to how an APS can satisfy the independence requirements of the code of conduct. It expects to issue that guidance in final form in 1999, even over the possible objection of the SEC.

CPA Journal editor Anthony J. Mancuso has written an article this month that provides the details of the various alternative practice structures that have recently come onto the scene. CPAs should read the article not only as observers but also as potential active players, whether seeking to join a larger organization or, more relevantly, to restructure a practice to take full advantage of market opportunities. As Ronald J. Huefner suggested in his August 1998 article on the new Uniform Accountancy Act, firms of all sizes may want to split their practices into two entities just like American Express. Under such a situation, there seems to be little question in many jurisdictions (including New York) that, for clients for which the CPA firm does not provide regulated services, the unregulated entity and its CPAs would be free to be compensated in any form the marketplace legally allows. *

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