Conduct Rule 505, Form of Organization and Name, states that a member may practice public accounting only in a form or organization allowed by law or regulation that conforms with resolutions of the AICPA Council. Assume that a CPA firm is part of an alternative practice structure (APS) in which the firm is a subsidiary of another entity. Which attribute prevents a member of the AICPA from practicing public accounting in the APS?
Non-CPAs own a majority of the firm’s financial interests.
The overriding focus of the Council Resolution, the Code, the bylaws, and other AICPA requirements is that CPAs remain responsible, financially and otherwise, for the attest work performed to protect the public interest. Thus, CPAs must own a majority of the firm in terms of financial interests and voting rights. However, in the context of alternative practice structures (APSs), CPAs may own the majority of financial interests and voting rights in the attest firm, but substantially all revenues may be paid to another entity in return for services and the lease of employees, equipment, etc. Nevertheless, given the safeguards in the resolution, Code, etc., if the CPA-owners of the attest firm remain financially responsible under state law, they are deemed to be in compliance with the financial-interests requirements of the resolution.