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Simpler Leases, Clearer Debt Rules: PCC's Latest Moves

Read the latest on what the Private Company Council is up to—from ESOPs to lease accounting to debt modification—and what it means for CPAs.

Is Your Firm Ready for the PE Era?

From talent wars to tech investments to cash-fueled acquisitions, private equity is rewriting the rules of public accounting—and firms that aren't paying attention risk being left behind. Here's what you need to know.

From Checklists to Clarity: Rethinking Risk Under SAS 145

Audit risk hasn’t changed—but expectations have. Here’s why better thinking, not more paperwork, is the new standard.

What Private Equity & APS Mean for the Profession

Private equity and alternative practice structures are here to stay. CalCPA's comments to the AICPA outline why standards must evolve to protect audit quality, public trust and the future of the profession.

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From data privacy to disparate impact lawsuits, AI adoption comes with risks that most firms aren't prepared for. CAMICO's advisory team breaks down the questions you must answer before any AI tool goes live.

Q1. How is generative artificial intelligence impacting CPA firms?

A1. Artificial intelligence is transforming CPA firms, along with many other businesses, as many seek to leverage the use of the technology to reduce repetitive tasks and similar pain points, accelerate innovation, and increase productivity. AI utilization for most CPA firms generally falls into the two primary categories: 

As the use of any AI technology is organization-specific, CPA firms need to establish a solid understanding of their unique needs and objectives and gain an understanding of how AI works before they can begin to identify what, if any, AI opportunities are appropriate for their firm. 

For risk management purposes, it is important to distinguish between (1) AI used to assist professionals under their supervision, judgment and review, and (2) AI systems that autonomously generate advice, interact directly with clients, and/or make operational decisions without human oversight. The former generally presents lower regulatory and liability exposure. The latter requires heightened controls, including monitoring mechanisms, to ensure accuracy, privacy, ethical use and compliance with applicable laws and regulations.

Q2. With the plethora of AI tools on the market, what guidance does CAMICO have for firms beginning their AI due diligence? 

A2. For those just starting on this journey, it may be difficult to understand how AI tools work and how they have been trained. Consider engaging an IT professional to help you navigate the due diligence process. Any tool you deploy within your firm needs, at a minimum, to secure and protect confidential data. Therefore, it is imperative that a firm’s due diligence process include obtaining an understanding of the specific AI tools being considered. Some basic but important questions to consider include: 

Q3. Is implementing an AI governance structure important for CPA firms?

A3. Yes. Establishing an AI governance framework helps to promote security, compliance and ethical AI use while helping firms maintain operational integrity, as well as client trust. Without clear governance, firms risk exposing sensitive confidential data, making flawed decisions or potentially escalating their risk of noncompliance with evolving regulations. The key isn’t just adopting AI; it’s adopting it responsibly. From CAMICO’s perspective, “responsible use” of AI for CPA firms includes implementing and maintaining protocols and procedures designed to ensure transparency, privacy, accountability, compliance and ethical use. For example, firms should adopt clear principles and practices for responsible AI use by establishing written guidelines to clarify that these technologies must not be used to create content that is inappropriate, discriminatory or otherwise harmful to others (clients, employees, etc.) or the firm.

Q4. What are some of the risk management considerations for our firm as we evaluate potential AI utilization?

A4. Generative AI is not infallible. Whether using AI for assisting with research, automating calculations, crafting emails or explaining the tax code, be alert for its inaccuracies. Often, AI-generated information is outdated, misleading or even fabricated (referred to as “hallucinations”). Therefore, all AI-generated outputs must be reviewed to ensure accuracy and reliability. A proper review will also help mitigate the risk of inappropriate, discriminatory or otherwise harmful content being shared and relied upon by your firm and others.

Another source of risk is inadvertently compromising the confidentiality of data. Before using a generative AI provider, we recommend performing due diligence on the AI provider to ensure their system complies with professional standards and regulations. For tax-related engagements, firms must also ensure compliance with IRC Sec. 7216 and the associated regulations, which restrict the use or disclosure of taxpayer information to third parties (including certain AI platforms). In some cases, written taxpayer consent may be required before transmitting data to external systems.

When conducting your due diligence, firms should research the AI provider’s reputation and confirm whether provider has a history of training its models on unauthorized data. Firms should also review the provider’s terms of use to understand how data and output are handled. Some vendors may reserve rights to access, store, reuse or further train models on firm-generated content unless explicitly restricted. Contract terms should clearly state that the firm maintains ownership of its work product and client-related materials, that the provider will not use the firm’s data to train or improve models unless expressly authorized, and that confidentiality and data-protection obligations apply.

Q5. What should our firm do to mitigate potential risks as we move forward with AI adoption? 

A5. As you explore the opportunities afforded by generative AI, it is imperative to understand its overall risks and countervailing safeguards to develop an appropriate comprehensive AI governance framework (see Question 3 above under General Information) for your firm. In addition, successful integration of generative AI tools requires a well-crafted implementation plan, including specific firm education and training to ensure responsible use. Firms should document that employees receive training regarding responsible use, confidentiality safeguards, verification of accuracy, and escalation procedures for any questionable AI-generated output.

Important aspects of maintaining confidentiality are ensuring data privacy and mitigating security risks. Firms should encrypt data as appropriate, implement access controls, and adhere to applicable data protection regulations. It may be necessary to consult with qualified legal counsel and update the firm’s Privacy Policy to ensure transparency about the categories of sensitive information collected; the sources of that information; the purposes for its collection; and how the firm stores, secures and shares such information.

CAMICO also believes that a clear and concise generative AI policy to document your firm’s authorized usage is paramount in establishing responsible use of AI. Please see CAMICO’s generative AI policy template available on CAMICO’s Members-Only Site. As this will be unique to your firm, we recommend working with your firm’s legal counsel and IT specialists, as appropriate, as you develop, tailor and implement your generative AI strategy and related usage policy.

Q6. Should I inform clients and update my existing engagement letter if my firm is using AI? 

A6. Not all AI applications require client disclosure under legal and regulatory guidance as currently promulgated. At this time, the key distinction lies in whether AI is directly interacting with clients or merely a tool assisting professionals with their work. As AI tools become more sophisticated, firms will need to consider when and how to disclose their use of AI to clients. 

As laws evolve, AI disclosure may become more important as regulatory bodies increase oversight. Current laws, including the European Union’s General Data Protection Regulation (GDPR), require businesses to inform individuals when AI tools make automated decisions that significantly impact them. The Federal Trade Commission has issued warnings about AI transparency, emphasizing that companies must avoid misleading consumers and, therefore, should disclose AI use. Some states, including California, have passed AI transparency laws that specifically require businesses to disclose when customers are engaging with AI rather than humans. 

Even if not required, transparency is considered best practice, as it provides an opportunity to reassure your clients of your responsible AI use, and that you are taking reasonable measures to safeguard their data and privacy. Refer to CAMICO’s illustrative engagement letter language below, which should be tailored as appropriate to address your firm’s specific utilization of AI:

Our firm may use generative artificial intelligence (“AI”) tools to improve efficiencies in areas such as tax and accounting research, document drafting, or other analysis to assist us with rendering services to you under the terms of this agreement. We have policies and procedures in place to ensure that any AI-generated content is subject to our firm’s strict quality control guidelines which include protocols for applying professional expertise, judgment, and oversight in the review and interpretation of any AI-generated content. In addition, we maintain reasonable safeguards to ensure responsible use of AI which includes strict adherence to the requirements set forth for confidentiality, privacy, security, and ethical use of AI in accordance with applicable laws and our professional standards.

Q7. If we use an AI tool to automate processes in human resources, what should we be considering? 

A7. Employers must tread carefully when considering implementing AI in areas such as recruiting, performance management or compensation. While AI tools promise efficiency and cost savings, they also create new risks, including the potential for discrimination claims. When evaluating potential AI tools, the key is to balance efficiency with compliance to ensure that such AI technology doesn’t undermine fairness or expose the firm to avoidable lawsuits.

For example, one of the biggest legal risks associated with using AI in the recruitment process is the concept of “disparate impact,” a policy or practice that appears neutral on its face but results in disadvantaging a protected group. The Equal Employment Opportunity Commission (EEOC) has already issued guidance warning that automated decision-making tools fall under the same anti-discrimination laws as traditional practices. Employers should be aware that claims may be brought not only by rejected applicants, but also by government agencies seeking to enforce civil rights laws. This type of risk underscores the need for firms to do their due diligence on AI tools and conduct bias audits before relying on AI algorithms when making employment decisions.

As many states are starting to regulate how employers may use AI in HR practices, with many of these new laws reflecting a trend towards transparency and informed consent, it is imperative that firms are current with federal and state AI-related employment laws. Other proactive, risk-mitigating controls for AI use in HR workflows include:

Q8. What other risk management best practices should I consider? 

A8. CAMICO encourages the following additional best practices:

Q9. Where can I find additional information regarding AI? 

Policyholders with questions should contact the Loss Prevention department by 

 or call 1 (800) 652-1772 and ask to speak with a Loss Prevention Specialist. Additional risk management resources are available on CAMICO’s Members-Only Site.

This FAQ document is not intended to be used or relied upon as a substitute for a firm’s compliance with applicable professional standards nor is it intended to be a substitute for seeking legal advice. CAMICO presents this FAQ guide for reference purposes only to highlight common policyholder inquiries regarding the risk management implications of using Generative Artificial Intelligence. CAMICO policyholders are welcome to contact CAMICO with specific questions, comments, or concerns at 1 (800) 652-1772 or 

 . Additional risk management resources are available on 

The CPA's AI Checklist: What to Ask Before You Deploy

From data privacy to disparate impact lawsuits, AI adoption comes with risks that most firms aren't prepared for. CAMICO breaks down the questions you must answer before any AI tool goes live.

Established in 2012 by the Financial Accounting Foundation (FAF) to advise the FASB on the appropriate accounting treatment for private companies for items under active consideration on the FASB’s agenda, the Private Company Council also advises the FASB on possible alternatives within Generally Accepted Accounting Principles (GAAP) to address the needs of users of private company financial statements. 

The following is an update on recent activities and highlights from the PCC’s 2025 Annual Report, which was published earlier this spring.

The PCC’s most recent meeting in March included discussion of three current research projects—and a fourth project added—that emerged from its structured process to evaluate our agenda priorities. The research projects address:

: PCC members discussed recent feedback from private company financial statement stakeholders (for example, lenders and sureties) during PCC liaison meetings and in response to the FASB 2025 Invitation to Comment, Agenda Consultation (2025 ITC), which primarily focused on repurchase obligations of employee stock ownership plans from a plan sponsor perspective. 

PCC members added this topic as an area to research as part of their agenda priorities.

: In collaboration with the PCC’s leases working group, the group is continuing its research to determine whether there are opportunities to further simplify the accounting guidance on leases for private company lessees. 

PCC members discussed the key takeaways from the January leases working group meeting and recent stakeholder feedback. PCC members agreed with the following working group recommendations (all from a lessee perspective): 

Subjective Acceleration Clauses and Related Debt Disclosures

: Members discussed the FASB staff’s research on subjective acceleration clauses, which are prevalent in many private company debt arrangements, and influence whether debt is classified as a current or noncurrent liability in a classified balance sheet. The PCC is exploring how to reduce the complexity in applying the guidance and more closely align it with lender practices.

PCC members recommended that the FASB add a project to its technical agenda on subjective acceleration clauses in determining the classification of debt as a current or noncurrent liability in a classified balance sheet because the issue is not unique to private companies.

The PCC also recommended to FASB that the guidance be amended to:

At a future meeting, FASB will discuss subjective acceleration clauses and related debt disclosures, including the PCC’s recommendations, for an agenda decision and initial deliberations.

Debt Modifications and Extinguishments and Troubled Debt Restructurings

: PCC members discussed the key takeaways from the January debt modifications and extinguishments working group meeting. PCC members expressed concerns with the complexity of the current accounting models for debt restructurings and discussed recent feedback received in response to the 2025 ITC. PCC members acknowledged that the FASB plans to discuss this topic at a future meeting and agreed to postpone further research on this topic until that meeting takes place.

PCC members discussed feedback received during the recent liaison meetings with: 

PCC members will hold a town hall at AICPA ENGAGE Conference in June. The next PCC meeting is scheduled for June 1-2.

, which highlights the year’s accomplishments and activities. The PCC’s first Annual Report, published in March 2025, grew out of the FAF’s final report on the 2023-2024 Review of the Private Company Council.

The 2025 report includes a message to private company stakeholders, 2025 highlights and key progress areas, a section on stakeholder engagement, a look at PCC agenda priorities and a forward-looking strategy section.

If you have any private company financial reporting issues to raise with the group or if you are interested in becoming more involved as either a PCC member, a PCC working group member or providing feedback on FASB or PCC initiatives, email us through the 

More information about our work is available by visiting 

We look forward to continuing to engage with CalCPA members over the course of 2026.

The views expressed in this article are those of Jere Shawver only. Official positions of the PCC and the FASB on accounting matters are determined only after extensive public due process and deliberation.

The accounting profession is in the middle of a transformation unlike anything seen in a generation. Private equity, alternative practice structures, and an explosion of new ownership models are reshaping how firms grow, compete and serve clients. CalCPA gathered five industry experts at our recent Town Hall to make sense of the moment—and offer firm leaders a roadmap for what comes next.

Dan Hood, Editor-in-Chief of Accounting Today and host of the firm-focused PE Summit, set the stage by stating the profession is experiencing a level of disruption it hasn't seen since the late 1990s—and this time, the changes are likely to stick.

Hood pointed to remarkable growth numbers as evidence: top 100 firms saw roughly 8.6 percent overall revenue growth last year, or closer to 15 percent when the Big Four are excluded. Merger and acquisition activity nearly doubled, from approximately 125 deals among top 100 firms to 225 in 2025 alone. The catalyst, in large part, is capital.

While a common misconception is that private equity is purely about acquisition capital, Hood and the other panelists emphasized that PE-backed platform firms bring far more than a checkbook.

“It’s not just the capital for acquisition, though that sort of makes headlines,” Hood explained. “It’s all the other things that private equity and other outside players are bringing into accounting firms—HR, technology, marketing and other areas that firms had pretty much had to figure out on their own.”

Thomas Bennett, Managing Principal at Baker Tilly—which crossed its two-year mark under private equity ownership—echoed that thought. He noted that rather than loosening standards around independence and conflicts of interest, Baker Tilly’s investors have pushed the firm to be more conservative “on potential risks of conflicts of interest and independence. We have become even more conservative with respect to potential conflicts of interest—not less. There’s nothing more valuable than our reputation, our brand and the sustainability of the firm.”

The Independent Path Is Still Viable—But Requires a Plan

Not every firm is or should be pursuing outside capital. A striking statistic from the conversation: 94 percent of firms remain outside any alternative practice structure. Tom Barry, Managing Partner at GHJ made a case for why independence, done strategically, is a competitive choice.

“For us, the simplicity of being our own bosses and driving independent allows us to make decisions that are really driven around our clients and our people,” Barry said. “There are trade-offs, but there’s an opportunity for us to thrive.”

But both Barry and Hood were clear: Firms that choose to remain independent must actively build a plan that accounts for a more competitive market—one where PE-backed competitors are recruiting aggressively, investing heavily in technology and bringing cash to acquisition tables.

“You can’t just be independent by default,” Hood said. “You’re going to have to have a plan to make sure that you’re able to stay strong and survive independently.”

The Talent Question: Culture Over Structure

One of the session’s most revealing threads was around talent. The panelists largely agreed that the ownership structure itself—PE or traditional partnership—is less important to professionals than the focus on people.

“It still really comes down to what drives people within an organization: relationships, opportunities, career paths, transparency,” Bennett said. “As long as we continue to focus on those things, the ownership structure is merely one way to facilitate bringing that to our people.”

Bennett also noted that PE ownership introduces a “new currency”—equity liquidity—that can be compelling for next-generation leaders who previously had limited options for realizing the value of their work within a traditional partnership model.

Standards, Risk and the Role of Peer Review

Rich Simitian, Director of CalCPA’s Peer Review Program, and Suzanne Holl, Executive Vice President at CAMICO, brought an important grounding voice to the conversation: the fundamentals of professional risk haven’t changed, but the complexity has increased.

“PE has not changed the risk profile per se,” Holl said. “But as you have inconsistency in culture, or not an appropriate governance structure in place, that’s where those risks become more of an issue. Following technical standards is just the floor for the public.”

Holl called for practical guidance that goes beyond technical standards: clear and consistent interpretation across standard-setters and regulatory bodies. “In the event of a claim, the last thing we need is ambiguity anywhere along the line,” she said. “Those plaintiff attorneys are going to leverage that.”

Simitian noted that peer review processes are actively evolving to address APS complexity, including a shift toward AICPA-level administration for firms in alternative structures—a move designed to build expertise and ensure consistency across administering entities.

As the session closed, panelist offered one takeaway for firm leaders:

The profession, as CalCPA CEO Denise Froemming noted in closing, has navigated seismic change before. “We always come together, we talk, we make decisions, we have standards, and we all coalesce around commonalities,” she said. “I think this is no different.”

 by registering and accessing the event in your Activities. And be a part of the 

California practitioners—especially those in small and mid-sized firms—are navigating an environment where time is compressed, staffing is lean and client expectations continue to rise. Efficiency is essential.

At the same time, peer review findings continue to highlight recurring deficiencies in risk assessment and documentation. Planning is rushed. Relevant assertions are not clearly identified. Procedures performed do not clearly respond to assessed risks. Documentation reflects conclusions, but not always the thinking behind them.

SAS No. 145 did not fundamentally change audit risk. But it did clarify and elevate how deliberately California practitioners must identify, assess and document risk.

This isn’t about more paperwork. It’s about better planning.

When I begin planning an audit, I ask myself a simple question: If I only had eight hours to perform this audit, where would I focus?

That question forces discipline. It eliminates mechanical thinking. It pushes me to identify what truly drives risk in the entity.

SAS 145 reinforces this mindset by emphasizing inherent risk factors, including complexity, subjectivity, change, uncertainty and susceptibility to management bias.

Before we evaluate controls, before we determine whether we plan to test operating effectiveness, we must understand the nature of the risk itself.

And that is where many audits begin to lose clarity.

Inherent Risk Is Not ‘After Controls’

One of the most common misunderstandings in practice is the blending of inherent risk and control considerations. For example, “Cash has low inherent risk because it’s kept in the bank” or “Revenue has low inherent risk because management reviews it monthly.”

Those are control considerations. Inherent risk must be assessed before considering controls.

Inherent risk relates to the susceptibility of an assertion to misstatement based on its nature. Controls may reduce the overall risk of material misstatement, but they do not reduce inherent risk.

Under SAS 145, inherent risk and control risk must be assessed separately. If controls are not tested, control risk is assessed at maximum.

For smaller firms in particular, this distinction is critical. Familiarity with a client can unintentionally lead to blending inherent risk with comfort over existing processes. The standard challenges us to slow down and separate the two clearly.

Another important clarification under SAS 145 is the concept of a “significant class of transactions, account balance or disclosure.”

A class is significant when there is at least one relevant assertion with an identified risk of material misstatement.

This shifts the focus from auditing material balances simply because they are material, to auditing areas where assertion-level risk truly exists.

SAS 145 also requires what many refer to as a “stand-back” evaluation—an intentional pause to consider whether all significant classes have been properly identified.

In peer review, a common issue arises when:

Both situations suggest that planning did not drive the audit.

The standard strengthens the expectation that risk assessment must clearly link to the nature, timing and extent of procedures performed.

Documentation Is About Rationale—Not Volume

SAS 145 enhances documentation requirements, particularly around:

This does not mean longer memos or more checklists. It means documenting why we concluded what we concluded.

An experienced auditor reviewing the file should be able to understand the logic behind the audit strategy without verbal explanation.

When documentation simply states conclusions without explaining reasoning, defensibility weakens. Thoughtful documentation strengthens both quality and confidence.

Even small entities rely heavily on automated systems, cloud platforms and system-generated reports.

If we do not understand how transactions are initiated and processed; how data flows through the system; who has access and how access is controlled; and how changes to programs are managed, then we cannot reasonably conclude that information used in our procedures is reliable.

Substantive procedures built on unreliable system reports do not produce reliable audit evidence.

SAS 145 modernizes risk assessment by requiring a clearer understanding of risks arising from the use of IT and related general IT controls.

For smaller practitioners, this does not mean becoming IT specialists. It means asking better questions, understanding system dependencies and documenting that understanding clearly.

Most peer review deficiencies do not stem from lack of effort. They stem from rushed or mechanical planning.

More importantly, the audit becomes a compliance exercise rather than a value-driven engagement.

When risk assessment is done well, the audit changes. A thoughtful planning discussion leads to a deeper understanding of the entity’s business model; economic pressures; operational challenges; accounting estimates and judgments; and system dependencies.

Clients recognize the difference between an auditor who checks boxes and one who understands their business.

The value of an audit is not simply issuing financial statements. It is identifying areas where processes may be vulnerable, where internal controls can improve and where reporting risk can be reduced.

SAS 145 supports that advisory mindset—if we allow it to.

For firms looking to strengthen implementation:

SAS 145 is not about compliance for compliance’s sake. It is about discipline.

It asks us to think more critically, document more intentionally and align procedures more precisely with risk.

For smaller practitioners, this is not a burden. It is an opportunity to strengthen audit quality, navigate peer review with confidence, elevate the audit from mechanical execution to professional judgment, and ultimately, an to serve clients better.

The accounting profession is in the middle of a significant shift.

Private equity (PE) investment and alternative practice structures (APS) are no longer emerging concepts—they are actively reshaping how firms operate, grow and compete. As more firms explore these models, important questions are being raised about independence, governance and how professional standards should evolve to keep pace.

To address these issues, the AICPA Professional Ethics Executive Committee (PEEC) released proposed updates to the Code of Professional Conduct focused on APS and PE structures. In response, 

 to help inform how these standards are shaped moving forward.  

Private equity-backed models are accelerating change across the profession. Firms are using these structures to invest in technology, expand services and address succession challenges. At the same time, these models introduce new complexities—particularly around maintaining independence in attest services.

As CalCPA noted in its comments, this moment represents an inflection point. The question is not whether APS and PE will play a role in the profession—they already do. The focus now is ensuring that standards and oversight frameworks evolve in a way that protects audit quality and public trust while remaining practical for firms to implement.  

To support a thoughtful and balanced response, CalCPA convened its Alternative Practice Advisory Group (APAG) and brought together leaders from firms of different sizes and structures—including both PE-backed and independent firms.

This work was grounded in a few key principles:

One of CalCPA’s central messages is that this does not need to become a dividing line within the profession. Some firms will pursue APS and PE models. Others will not. Both approaches can serve the public interest when supported by strong governance, clear standards, and effective oversight.

The focus should remain on what matters most: independence, transparency, accountability and audit quality.

Read more about APS, private equity and the future of the profession in this article

, which summarizes our recent Town Hall that featured experts sharing their thoughts on why firms are pursuing (or not pursuing) APS/PE models, key risks and opportunities, how standards and oversight are evolving, and what it all means for the future of the profession.

Stay ahead with essential CPA resources

Golden State wisdom straight from the experts

Simpler Leases, Clearer Debt Rules: PCC's Latest Moves

Is Your Firm Ready for the PE Era?

From Checklists to Clarity: Rethinking Risk Under SAS 145

What Private Equity & APS Mean for the Profession

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CPAs: Making Sense of What Comes Next campaign