Ethical Considerations of Accounting/CPA Mergers & Acquisitions

file folder with merger and acquisition and financial graphs

In the current market of accounting mergers and acquisitions, where many established principals of longstanding firms are reaching retirement age and looking for an exit strategy, there is a tendency for excited buyers and sellers to overlook certain aspects and repercussions of the selling process while only focusing on the final purchase price and terms.

One set of considerations that must never be overlooked is the ethical aspect of the sale. The five areas of ethical consideration that should be considered during a sale are purchaser competency, employee welfare, confidentiality, disclosure, and conflicts of interest. 

This blog post will examine these five critical ethical considerations to help buyers and sellers avoid neglecting them.

Competency of Purchaser

One of the most important ethical obligations that a seller must fulfill is verifying that the purchasing firm is competent and knowledgeable enough to provide a comparable level of professional care to the clients of the seller. If your CPA firm typically fills a niche in a specific industry and the purchasing firm employs nobody with expertise in that niche, then you must perform an analysis to see if the purchaser is truly ready to handle your clients.

Attest work (compilations, reviews, and audits) can only be completed by a CPA firm in the state of Arizona. This technical requirement requires sellers to consider the specialized experience and the credentials of each buyer.

These considerations are also important from a financial standpoint, as many CPA firm sales include some amount of earnout, and an incompetent buyer will drive clients away and trigger the earnout clause, which will negatively impact the sale price. It is in the best interest of all parties to ensure beyond a shadow of a doubt that the buyer will run the firm competently.

Employee Welfare

Employees are the lifeblood of your firm. Whether the practice only employs the principal or if there are dozens of staff members, the employees are what make the business function. As such, it is crucial to remember to account for the welfare of employees as a result of the sale.

Because human capital is so valued in this market, your trained and experienced staff will serve to differentiate your firm from the crowd. Considering that, the seller must negotiate in the employees’ best interest. 

There should be a detailed section in the purchase agreement that addresses the pay rate and continued employment conditions of each employee to ensure that they will be treated properly under the new management.


Section 1.700.001.01 of the AICPA Code of Professional Conduct states that “A member in public practice shall not disclose any confidential client information without the specific consent of the client”. There is an exception to this rule during the due diligence and review process during a sale, but the specifications to remain in compliance are very stringent.

The seller must obtain a “specific” and written confidentiality agreement with the prospective purchaser to make sure that none of the information reviewed is disclosed. The reviewer must also never use any of the confidential client information to their own advantage.

Both parties must exercise extreme caution to prevent any confidential client information from being disclosed improperly.


CPAs and accountants are not perfect. Often, a CPA or accountant has had one or more errors that may have triggered their malpractice insurance (E&O insurance). Other times they may have had to go before the state board for some oversight or error.

While this is quite normal, full disclosure of the issue, the liability, and whose insurance will be used to resolve the issue is essential.  Non-disclosure can be an automatic breach of contract in many definitive purchase agreements, giving the buyer recourse that is unnecessary. The error is almost never an issue that cannot be worked out unless it wasn’t disclosed.

Non-disclosure may be humbling, but disclosing all issues up front increases trust in the deal, helps ensure a satisfactory transition, and reduces the odds that the transaction ends up in litigation. 

Conflicts of Interest

All parties involved in the sale and purchase of a firm must analyze their relationships to ensure no conflicts of interest arise. A detailed screening process should also be completed, though even the most detailed screening process may not reveal all conflicts.

Both parties must take care to reveal any possible conflicts of interest so that they may be dealt with as early in the process as possible. COI wavers should also be considered to protect both parties legally.

To ensure that all of the ethical considerations are fully analyzed, as well as all other aspects of the sale, it is wise to hire an experienced business broker that will dedicate the necessary time and resources to making your sale or merger run smoothly.

Berkshire Business Sales and Acquisitions has a process that accounts for these important ethical considerations. We are experienced in the Accounting Practice Mergers and Acquisitions market. We are experts at personalizing exit plans and setting our client’s firms apart from the masses. Berkshire will give the sale of your CPA firm the attention it deserves.  If you have questions, please get in touch with us at 602-614-3583 or contact us to get started.

Be the first to get notified about new listings