Introduction The accounting firm industry experienced a ground-breaking transaction in August of 2021 when TowerBrook acquired EisnerAmper, which marked the first private equity (“PE”) transaction of a large-scale accounting firm. This transaction was structured using an alternative practice structure (“APS”). Historically, licensing and independence rules have barred non-CPAs from owning accounting firms. Through an APS, a PE firm may invest in the non-attest entity with service lines such as tax advisory and consulting. The CPA partners retain control over the attest functions, which preserves regulatory compliance. While the APS model has been in existence since the 1990s, this August 2021 transaction brought new attention to this structure. What has followed is an extraordinary volume of deal activity. Per the CPA Trendlines (“CPAT”) Cornerstone report posted on November 18, 2025, CPAT has tracked over 115 PE-related transactions from 2020 to 2025, with over 80 transactions in 2025. While PE in the accounting firm space is no longer news, the pace and volume of transactions is certainly news-worthy. Impact of PE Investment The impact of PE investment on the accounting firm space is unprecedented. The APS has enabled PE to fuel billions of capital investment. PE-backed firms provide immediate payouts to partners at appealing valuations while providing access to capital to these firms for merger and acquisition growth, technology investments, and other priorities. Well-capitalized firms now have an improved ability to invest in technological capabilities, attract experienced talent to be more competitive for college graduates, and improve their market position. With new technologies, routine tasks are being automated such as data entry, tie-outs and controls testing, resulting in less time needed to perform certain audit procedures. What the regulators are saying At the AICPA December 2025 conference on Current SEC and PCAOB Developments, common topics were the presence of private equity in the accounting firm space and the opportunities and challenges that come with this investment. PCAOB Acting PCAOB Chair George Botic described that both transformative technologies (e.g., artificial intelligence or “AI”) and the continuing expansion of private equity investments in accounting firms are two developments that bring opportunities and challenges. Mr. Botic noted that while AI has enhanced risk assessment, reduced manual processes and made it possible to efficiently analyze entire populations of data (which can reduce the risk of missing irregularities or unusual patterns), that overreliance on AI may ultimately threaten auditors’ exercise of professional skepticism and judgment. As it relates to private equity, Mr. Botic noted that while these investments have the potential to enhance audit quality by increasing firm capacity and modernizing audit tools with advanced technologies, the presence of private equity presents a risk that firms shift incentives to prioritize profitability over audit quality. Mr. Botic stated, “Both AI and private equity investments in accounting firms carry the potential to truly reshape the profession. Yet these opportunities come with clear challenges to ensure that overreliance on AI and the pressures of private equity do not jeopardize audit quality.” SEC SEC Chair Atkins discussed in his remarks that he would like the PCAOB to modify its inspections process to place more reliance on the system of quality management and that inspection of certain engagements would inform the PCAOB if the firm’s system of quality management is effective. He also expressed a view that accountability for audit quality should move upward to firm leadership. How is a firm’s system of quality management (“SQM”) impacted? Today’s transforming environment has far-reaching impacts on a firm’s SQM. This publication will focus on risk assessment, governance and leadership, ethics and independence, resources, engagement performance, and monitoring and remediation. 

With the effective date for SQMS 1 and QC 1000 fast approaching, firms of all sizes—especially small and sole practitioners—must take action to implement a system of quality management (SQM) that meets the new standards. The good news? You don’t have to start from scratch. Despite QC 1000’s implementation date deferral, the AICPA’s date hasn’t changed, and the international standards are already effective. It’s important to maintain momentum on the efforts toward implementation of all applicable standards for your firm. This article outlines 10 practical steps to help firms build their SQM. Each step includes actionable guidance and considerations for firms with limited resources, and ties into JGA’s broader thought leadership on quality management, risk assessment, and system evaluation. The 10 Steps to Build Your SQM Step 1: Establish a Project Team Form a team with the right mix of quality expertise and operational insight. For small firms, this may mean involving a manager who can grow into a leadership role or setting aside dedicated time as a sole practitioner. Recommended actions to consider: Identify internal champions with interest or experience in quality. Schedule recurring project meetings to maintain momentum. Join a peer group for support and shared learning. Step 2: Understanding and Awareness Document your firm’s business strategy, service offerings, and operational conditions. This step helps identify factors that may impact quality—such as remote work, new industries, or staff turnover. Recommended actions to consider: Conduct a strategy review with firm leadership. List recent changes in firm structure or engagement types. Use these insights to inform your risk assessment. Step 3: Assign Responsibilities Define who is accountable for the SQM. The new standards require clear delineation of ultimate and operational responsibility, including oversight of independence and monitoring. Recommended actions to consider: Assign roles based on existing responsibilities. Clarify delegation boundaries for managing partners. Document responsibilities in your quality manual. Step 4: Establish a Risk Assessment Function Design a process to identify and assess quality risks. This includes understanding conditions or events that could impact quality objectives. Recommended actions to consider: Create a risk assessment policy tailored to your firm. Use relatable examples to demystify risk factors. Leverage AICPA practice aids for structure and templates. Step 5: Perform the Initial Risk Assessment Conduct brainstorming sessions by component and document risks using the AICPA Risk Assessment Template. Include both formal and informal responses. Recommended actions to consider: Use the AICPA risk library to identify common risks. Tailor risks to your firm’s size and services. Include existing responses—even if informal—for evaluation. Step 6: Finalize the Gap Analysis Evaluate where your current responses fall short. This may include undocumented policies or areas where responses don’t fully address the risk. Recommended actions to consider: Identify gaps in governance, ethics, and technology. Determine which informal practices need formalization. Prioritize gaps based on risk severity and regulatory impact. Step 7: Implement Responses to Address the Gaps Develop policies and procedures to close gaps. Responses must be documented and operational. Recommended actions to consider: Draft policies that reflect your firm’s values and risks. Link procedures to specific quality objectives. Use existing documentation as a starting point. Step 8: Update Your Monitoring Process Move beyond peer review prep—monitoring should be continuous and system-wide. Recommended actions to consider: Assign monitoring responsibilities across the team. Incorporate testing of responses into internal inspections. Use dashboards or checklists to track progress. Step 9: Formalize Root Cause and Remediation Procedures Investigate deficiencies and document why they occurred. This step is essential for both system and engagement-level reviews. Recommended actions to consider: Conduct interviews to understand root causes. Use findings to improve policies and training. Apply remediation even if your firm only undergoes engagement reviews. Step 10: Initial Test of Design and Implementation Review documentation and walk through processes to ensure your system is operational and testable. Recommended actions to consider: Validate that each component is supported by evidence. Simulate a peer review to test your system. Confirm that objectives, risks, and responses align. Conclusion Implementing a system of quality management is not just a compliance exercise—it’s an opportunity to strengthen your firm’s foundation for audit quality, risk management, and long-term success. Whether you’re a sole practitioner or a small firm with a few partners, these 10 steps offer a scalable roadmap to meet the new standards. Ready to get started or need help refining your approach? Contact your JGA audit expert today to schedule a consultation and ensure your implementation is tailored to your firm’s needs. At Johnson Global Advisory , we support firms in selecting, implementing, and optimizing these tools to meet their unique needs. For more insights, visit our blog or contact us to learn how we can help your firm AmplifyQuality®.