Audit Standards Overseer Also Backs Startups

Selected companies get a $25,000 grant, mentoring on product development, and a showcase at AICPA events, according to its website. The trade body has invested in many of the startups, according to a person familiar with the matter. 

The venture-capital style initiative is sparking concern from industry insiders about potential conflicts of interest. The AICPA oversees the accounting industry’s self-policing of financial audits of private companies, pension funds and other entities that hold in total billions of dollars in assets. 

“The AICPA should be a bell cow for the American accounting profession,” said Michael Shaub, an accounting professor at Texas A&M University. “Instead of focusing on what we need as a profession, they have leveraged the name to create revenue streams.”

An AICPA spokesman said the trade body invested in technology to help ensure its members have the right tools to perform their professional obligations. “We segregate this activity from our standard setting, peer review and other work in the public interest,” he said. 

The trade body’s accelerator has backed more than 20 tech startups since its 2017 launch, according to its website. Several offer products that compete with services developed in-house by the big accounting firms for clients, such as climate reporting tools, according to the trade body’s website. 

Other startups backed by the trade body aim to automate elements of audits that it oversees, such as reconciliations of bank transactions. At least one company is using the cachet of the trade body’s investment to help sell its product.

“Is there a clearer indication that a tool will be accepted and widely used than the support and backing of the [audit profession’s] governing body?” ByteChek Inc. said in a blog post. The Miami-based startup—whose slogan is “make compliance suck less”—sells software for a type of cybersecurity audit, known as a Systems and Organization Controls 2 report. These reports, governed by the trade body’s standards, have to be signed off by a certified public accountant.

ByteChek said in a blog post that auditors can “rest assured” using its tool, knowing it “will be working directly with the AICPA.” The post was taken down after The Wall Street Journal asked ByteChek and the AICPA for comment. 

One firm that does information-technology audits, Denver-based Linford & Co. LLP, said ByteChek offered to share revenue from clients who used its software to help create a report for auditing. The accounting firm said it couldn’t do this because of the requirement for auditors to be independent in both fact and appearance, according to managing partner Newel Linford. 

He said that ByteChek replied that the AICPA had signed off on its business model and was one of its investors. “In my professional opinion, this is shocking and nearly beyond belief,” Mr. Linford said.

ByteChek didn’t respond to requests for comment. The AICPA spokesman said ByteChek was “warned its marketplace activities were misrepresenting” its relationship with the trade body. After “failing to comply with this feedback,” ByteChek was removed from a list of accelerator-backed companies on the trade body’s website, the spokesman said. 

The AICPA spokesman said that sometimes a company backed by the accelerator “might push the envelope” on what that support means. “When we find out about that we manage it,” he added.

The accelerator is run by CPA.com, the commercial arm of the not-for-profit AICPA. It sells the trade body’s members everything from educational materials to software for managing expenses. These program services generate tens of millions of dollars in revenue for the trade body each year, according to public filings. “Any profits we make are reinvested to benefit the profession and its work to serve the public interest,” a spokesman for the trade body said.

One of the AICPA’s most recent commercial moves is to license its guidance and other materials for the IT audits. 

The trade body launched the licensing program because of concerns some software providers were playing down the role of accountants in the reports, which have to be signed off on by an auditor, according to its spokesman. “We’ve been policing our copyrights in this area and the licensing program is one aspect of that,” he said. He declined to disclose the licensing fees charged. 

Arlington, Va.-based tech company Ostendio Inc. last month announced it was the first software-as-a-service platform selected under the new licensing program. 

“Ostendio was chosen as the first licensed partner because we already operate within AICPA’s ethical parameters,” Ostendio’s chief executive, Grant Elliott, said in a press release on its website. The release was revised, cutting out that quote, after the Journal asked the AICPA for comment. 

The AICPA spokesman said the language originally used by Ostendio “mischaracterized its relationship” with the trade body. “They are a licensee of our content…not a business partner,” he added. 

Mr. Elliott, the Ostendio CEO, said his company had “worked enthusiastically and constructively” with the AICPA to gain its license agreement. The original press release was reviewed by the AICPA before being issued, Mr. Elliott said. A different group within the trade body later “expressed concern the term [partner] might be misconstrued and so asked us to modify the language, which we were happy to do,” he added.  

Write to Jean Eaglesham at Jean.Eaglesham@wsj.com