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More and more accountancy and audit firms are considering PE investment, but they need to understand the impact on their audit status under ICAEW regulations and FRC rules.

For partners considering retirement or wanting to boost investment, private equity (PE) may prove attractive. While private equity investment is an emerging trend, it’s vital to understand exactly what PE investment will mean for the future of a firm and its employees.

PE appetite for investment in accountancy and audit firms has largely been driven by perceptions of a fragmented market ripe for consolidation, the offer of consistent revenue streams, and substantial growth potential for acquired firms, especially in the expansion of accountancy and associated service lines. 

Some UK firms have secured PE funding and have ensured they remain compliant with the audit regulations, through consultation with ICAEW. However, it is critical to engage ICAEW and other bodies to scrutinise the often-complex legal agreements. ICAEW and the Financial Reporting Council are urging firms looking to take on PE monies to get in touch in the early stages of a transaction for support in navigating the intricacies of the eligibility criteria. 

Audit regulations, as derived from the UK Companies Act, require a majority of an audit firm’s voting rights to be held by audit qualified persons, which essentially means an audit firm must be majority controlled by individuals with the audit qualification. In this context, ‘majority’ means more than 50% unless a firm’s constitution specifies a higher percentage of voting rights are needed for decision making, in which case ‘majority’ shall mean that specified percentage or more.

Elaine Griffiths, Director, Regulatory Practice, Professional Standards, ICAEW, says: “It can be challenging when you’ve got external investment, because investors might want to control all the companies that they’re investing in. You can understand why investors might want to have some protective measures in place to safeguard their investments.”

So far, PE investors doing deals with accountancy firms haven’t been put off by the audit eligibility criteria. They are indeed finding ways to comply with the audit regulations and ensure a deal succeeds. Some of the ways include setting up a separate audit entity, whose ownership and control structure meets the requirements of the audit regulations, such as in the case of the Evelyn Partners and Apax deal, due to complete this year.

While creating separate entities creates a greater administrative burden, and marketing considerations, PE investors’ appetite is so far undimmed, and with two different businesses firms have been able to retain their audit registration.

While a majority stake is more than 50%, some audit firms may have clauses in their governance arrangements that specify higher thresholds, in some cases as much as 75% or even 100%. “Even before you look at private equity investment, firms will have a mix of partners and may not have enough audit qualified people to hit those higher thresholds,” Griffiths says.

Last September, the Financial Reporting Council published an open letter to audit firms and supervisory bodies confirming that it was not opposed to external investment in principle and acknowledged potential benefits, including increased investment in audit quality, innovation and market choice. However, the regulator emphasised the need for firms to manage risks, particularly those concerning conflicts of interest, and engage with their supervisory bodies.

“Partners might come to us with a governance proposal. We need to make sure it’s not just artificial. Something might work on paper, but actually the external investors might still be able to exert influence. When you’re looking at the control it has to be all matters that direct the firm’s overall policy or alter its constitution. So, if you have to go to a third party for approval of something material, that’s potentially not giving you unfettered control,” Griffiths says.

Failure to fully comply with audit regulations will have significant implications for a firm’s continued audit registration, and therefore its ability to issue audit reports post-transaction. 

Julie Matheson, partner at law firm Kingsley Napley, specialises in regulatory issues for the accounting sector: “Post-transaction, the constitutional structure of the firm will also have implications for whether any other applications are required, such as audit affiliate applications for newly created entities that might hold ownership interests in the audit firm. And indeed, whether the firm can even continue to describe itself as a chartered accountant.”

One of the biggest issues surrounding PE investment is audit independence and conflict of interest risks, or at the very least the perception of this. Matheson says: “PE-backed firms may be pressured (or even incentivised) to prioritise higher-margin practices, which could be fundamentally at odds with audit independence and quality. 

“There are prohibitions on audit services that the firm can provide to the private equity fund, portfolio companies of the fund, or any significant affiliate of companies in the fund, many of which may be public interest entities. The fund itself may be caught by independence requirements if it is deemed a ‘covered person’, in circumstances where it is in a position to influence the conduct or outcome of an audit.”

PIE auditors are restricted from providing most non-audit services to their PIE audit clients, which are subject to strict audit and governance rules. The Big Four firms continue to dominate the audit market for PIEs.

Griffiths says that any firm partly owned by a PE fund would need to make sure that those investors don’t also have any interests in an existing or proposed new audit client. Although these kinds of issues could arise at the point of investment, private equity firms do forge new and regular acquisition trails so this would be something that would need continual monitoring.

Vipul Sheth, MD of accountancy outsourcing business Advancetrack, says: “Public interest entities, like any other, will be dealt with in a professional manner with most audit firms. Maintaining trust in the audit profession requires robust safeguards, such as appropriate decision-making, declining certain work, or implementing clear ‘Chinese walls’ to separate interests. These measures are critical to ensure compliance and uphold confidence in the integrity of audits.”

Although a new and growing trend, PE investment into accountancy firms is becoming more and more popular in the marketplace, and firms and investors are proving it can be successful even within the strict rules. After all, it is hoped external capital can bring substantial opportunities for technological innovation and increased competitiveness in the audit market, all of which ultimately are beneficial for growth and the public interest. 

However, both aspiring accountancy firms and their fund acquirers should ensure that all regulatory implications are carefully thought through, especially given the risks at stake.

Author: ICAEW Insights

Bruce Cartwright of ICAS discusses the need for audit quality to remain unaffected by private equity’s growing influence in the profession, as well as the value of identifying models different from the traditional partnership approach.

As private equity’s presence in the accounting profession continues to grow, so too do the concerns of those who aren’t sure about the implications – be it good or bad.

On the back of that rising influence, the Institute of Chartered Accountants of Scotland (ICAS) is calling for a multi-stakeholder review of the framework governing who can own audit firms.

The organisation’s private equity working group has launched a new paper looking at the impact on the longstanding rules that oversee audit firm ownership.

The document analyses both the risks and opportunities of private equity investment, while also highlighting that the aforementioned rules have not been revisited in depth for several years.

Among the opportunities are succession planning, capital investment which may enhance audit quality, growth with economies of scale, and successful partnerships between firms and investors. The risks include audit quality, ethical challenges, market impact, culture and what happens next?

Asking the right questions

Bruce Cartwright, chief executive of ICAS, has spoken to AccountingWEB about audit quality needing to remain unaffected by private equity, why trust must remain earned, the value of identifying models different from the traditional partnership approach, and what’s making it a “really interesting time” for the profession.

He believes the private equity models seen so far are “quite diverse”, as are the approaches. Such variety was mirrored in the early approach of ICAS’s new paper. “What do we do with private equity, good or bad? How does it fit in?” said Cartwright.

“Actually, what I think it quickly moves to is – that’s not the right question.

“Everybody has been focused on private equity. It’s come in different formats and different jurisdictions, and it doesn’t respect geographies. The real question is a structural question, of which private equity funding is a subset.”

He stressed: “I don’t think we’re going as far as saying the structure is not fit for purpose. We haven’t concluded on that but have undoubtedly concluded that it’s been a long time since anyone’s really considered the structure.

“I think that’s the key for me – there’s more work to be done around what’s the appropriate structure and what does ownership look like?”

Appropriate time to look

Cartwright’s view on the matter is that it’s about time those structures were looked at.

“Dare I say – if you really want to be brutal about it – it’s maybe only 100+ years but when Mr Price and Mr Waterhouse were here, they didn’t set up to have global entities and franchises.”

He recognised that there has been a “massive change in the ownership structures and controls”, albeit with “probably not the same degree of open and transparent conversation about what is the best way”.

“The accountancy profession has to act in the public interest but part of that public interest is to have thriving accountancy practices that are resilient and strong going forward.”

Cartwright added: “It just feels like an appropriate time to look wider and actually say, ‘Well, how do we facilitate that and what does it look like?’ because, as we all know, the pace of change is just huge.

“I think it’s just a really interesting time. I don’t think ICAS is saying we have the answer but we are saying we’re approaching the question from the wrong angle.”

The need to retain quality

The report noted that firms must be satisfied that private equity investment will not negatively impact quality or lead to ethical challenges “which cannot be managed”.

It’s obvious where the focus of ICAS’ publication lies, with the word “quality” appearing 20 times across its nine pages.

Cartwright said the topic has “been at the forefront of an awful lot of discussions in the past five to 10 years”.

“I’ve been CEO now for seven years and I can visibly see that audit quality has been a real focus, and I think it has been enhanced in the UK and across the globe.

“Rightly or wrongly, there could be conceptions about how private equity operates and what they believe in. Audit quality is not that different from other business models in the sense that a quality product reputation sells in the marketplace and is good for business.

“So why would it be any different for an audit firm or an accountancy practice than an engineering firm or something different?”

Within that context, Cartwright thinks there is a misconception that “private equity is driven by the need for profit margin and business models to give a payback”. He added: “There’s nothing wrong with that per se, because at the end of the day, to my mind, that ties in with audit quality.

“Audit quality is a long-term thing and so is the reputation of a business that could be destroyed overnight. So I don’t think they’re misaligned. I think there might be a misunderstanding.”

Reversing into it

The report recognises that the rules on ownership of audit firms “have not been revisited in-depth for a number of years”.

“Given the evolution of society and market conditions in which such firms operate, now would seem an opportune time to reassess whether these rules are still fit for purpose,” it added.

“They cannot be lightly disregarded but must be subject to objective, independent scrutiny to ensure that they still best serve the public interest.”

The document stresses that such a review “must be undertaken by a wider group of stakeholders than just the firms themselves”.

Cartwright was not sure he could define who he would like to see involved in that conversation, instead recognising that there would need to be “some debate about who those stakeholders are”.

“Obviously, regulators have a big say in this,” he added. “I think the regulators themselves would come up with criteria that we’re trying to meet. What criteria is it? Audit quality being one of them and then the structure you’re proposing – how does it meet the quality and the other criteria that we’re setting?

“You always have to understand what good looks like, and then reverse into it. That doesn’t mean that you have to have a one-structure-fits-all if it achieves the objectives.”

Writes AccountingWeb

Mental health, AI readiness and sustainability also rank high among UK finance professionals in ACCA’s latest Global Talent Trends survey

Nearly two-thirds of Gen Z accountants in the UK say they want to become their own boss, according to new research from the Association of Chartered Certified Accountants (ACCA).

The figure — 61% — is nearly double the average across all other UK age groups surveyed (31%) and higher than the global average of 52%, suggesting a generational shift in long-term career ambition among UK-based early-career professionals.

The findings are part of the 2025 edition of ACCA’s Global Talent Trends report, based on responses from over 1,300 UK finance professionals and more than 10,000 globally.

“It’s an exciting time to be a young accountant in the industry, with so many aiming for the goal of being an entrepreneur,” said Jamie Lyon FCCA, Global Head of Skills, Sectors, Technology at ACCA.
“With almost three quarters also keen and confident to learn new AI skills, and more employers looking to prioritise mental health and wellbeing, our survey data shows a profession that is striving to do better for everyone.”

Skills gap in AI training

Despite widespread confidence in learning artificial intelligence tools — with 71% saying they feel ready to upskill — just 23% of respondents said their organisation currently offers AI-related training. Nearly half (46%) of UK accountants believe AI will be the most valuable skill in the future of work.

While 30% reported concerns over AI’s impact on their roles, this figure has dropped significantly — down 12% from the previous year — suggesting growing familiarity with the technology.

Mental health under pressure

Work-related stress remains a major concern in the profession. 50% of UK respondents said their mental health has been negatively affected by work pressures, and 30% have considered resigning as a result. At the same time, 57% believe their employer is now treating mental health as a priority.

“Our survey demonstrates that the UK offers some of the best working conditions for the profession,” said Glenn Collins, Head of Technical and Strategic Engagement at ACCA UK.
“Such as majority hybrid working arrangements, high pay satisfaction, and good learning and development opportunities — all of which are crucial to developing those entrepreneurship skills.”

Broader themes: pay satisfaction and hybrid work

UK accountants also reported relatively high levels of pay satisfaction. 55% said they were happy with their current remuneration — significantly higher than the global average of 41%.

Meanwhile, 64% of respondents said they work in a hybrid model, while 16% are fully remote.

Environmental impact also featured as a career motivator, with 51% saying they want to pursue sustainability-related roles within accountancy and finance. Among those with side jobs, 41% said their secondary work was driven by a desire to “give something back” or pursue work with greater meaning.

Writes Accountancy Age

Accountancy firm MHA is bucking the trend of professional services opting for private equity investment as its £271m initial public offering (IPO) went live this morning.

The UK arm of Baker Tilly International launched onto London’s junior stock market, AIM, at 8 am.

The firm had a successful year in 2024, as MHA reported that its revenue jumped by nearly 30 per cent to £180m. Over the last four years, it doubled its turnover from £90m (2020) to £180m (2024).

MHA stated it has “a medium-term aspiration to become a top 10 UK accounting and professional services business, generating over £500m annualised revenue.”

To hit this target, the firm opted for external investment.

However, its move to list in the UK differs from the strategy being followed at other parts of the global firm.

UK taking a different approach

At the start of this year, private equity firm Inflexion agreed to acquire a minority stake in Baker Tilly Netherlands. The private equity house said at the time that its share would support the firm’s “growth plans in the region.”

In February 2024, Baker Tilly’s US arm announced an investment from private equity firms Hellman & Friedman and Valeas Capital Partners. The vision behind this investment was to fund its certified public accountant business.

So why did the UK arm opt for public investment? Rakesh Shaunak, managing partner and group chairman of MHA, told City AM it was a “unanimous decision” and “endorsed by the partners.”

The IPO was deemed “the most attractive, sustainable route for the long-term benefit of our people and clients.”

He explained that “for the right firm and the right investor, private equity is a valid option, but for MHA, the higher potential short-term gains from private equity were outweighed by the important distinction that the control of our strategic destiny and planning will very much remain in the hands of our Board and our partners.”

“We will pursue strategic mergers and acquisitions at our own pace,” he added.

Shaunak noted that “going down the IPO route [it] will also give our people a real stake in the future of our business via a significant employee benefit trust.”

“And crucially, it would allow us to offer equity participation to future partners and leaders, ensuring they have a direct stake in the firm’s continued growth,” he added.

Private equity surge in the market

Dan Coatsworth, investment analyst at AJ Bell, told City AM, “The alternative routes to an IPO include selling to a private equity company, yet there needs to be a willing buyer.”

“The accountancy and business advisory sector is certainly on private equity’s radar, but it might be that MHA is not the only potential opportunity around, and there are cheaper or more attractive targets to pursue,” he stated.

Maria Ward-Brennan writes for City AM