The business startup has always remained a daunting task, especially while seeking investment. Crowdfunding offers some reliable help with the task – here a number of people (investors) invest a small amount each to collectively create a large sum of investment for the business idea. There are a plethora of online platforms available to support these causes and usually, investors don’t even know the business owner they are investing on. They simply have to trust the business idea. So, the business owner has reasons to celebrate. But what about CPAs?
Image Credit: MyEFunder via Flickr
When the large investment is involved, CPAs come into action. Now that the investment is not incurred by traditional funders, like – angel investors, banks, etc., the complexities of the regulations and rules are different. Because of which CPAs have to make some changes with their tasks. Here are some of the key things about CPAs must know to remain on the top of their business:
Regulations Changes With Crowdfunding Businesses
The Securities and Exchange Commission (SEC) has issued some guidelines for the crowdfunding regulations. The regulations are under Jumpstart Our Business Startups (JOBS) Act. With the recent revisions, capital raising opportunities have grown, which inflicts the role of the CPAs in a considerable way. Because of these revisions and new crowdfunding regulation rules, an enhanced level of financial disclosure may be required.
What’s new with the Regulation Crowdfunding rule:
1. Regulation CF (Title III Crowdfunding)
- Crowdfunding offerings that exceed $100,00 are required to be reviewed by CPA.
- Crowdfunding offerings that exceed $500,000 require the auditing by CPA.
2. Regulation A+ (Title IV) Crowdfunding
- Crowdfunding offerings need to be audited for all Tier 2 offerings where an issuer raises up to $50M.
3. Auditing Standards and Requirements
- Even the full set of financial statements may be prepared, which must be in accordance with U.S. Generally Accepted Auditing Standards (GAAS).
- Public Company Accounting Oversight Board (PCAOB) or U.S. GAAS are acceptable for the auditing of the Crowdfunding investments.
- Depending on the issuance type and offering level, auditor independence rules of SEC will comply instead of AICPA’s auditor independence rule.
What Do These Changes Mean To CPAs
More Opportunities
The changes in a rule bring in more opportunities for the CPAs to with tasks, like – financial statement preparation, attestation, and consultation.
More Responsibilities
As the new regulations make Crowdfunding business exempt from the regular registration department, the business owner will have to deploy certain changes in terms of the financial operations. Considering that most owners rely on their CPA’s advice with such operations, it adds more to the responsibilities of CPA to guide their client for better:
- Update the client with requirements for financial statements and level of attestations that may be needed.
- Aware them of increased business risk associated with increased financial disclosures.
- Guide them with the additional service requirements that may come up.
More Risks
- There are restrictions on the types of reports and presentations that are acceptable. Be careful with the choice you make with the reports.
- Small issuers require independence in accordance with the independence rules of SEC with certain financial disclosure requirements. Maintaining accordance and disclosure balance can be a little challenging.
Wrapping Up
Crowdfunding investment changes the accounting shape in a big way. Involvement of a large number of investors, multiple funding portal or broker along with the variation in their charges, etc. Develops a complex accounting setup. With the new changes in the regulation, the situation will change for betterment but there are certain risks involved. Be it bookkeeper, CPA, or attorney – all the accounting concerned duties have certain changes to deploy while serving crowdfunding setup. Keeping up with the new regulations and revisions will help you deploy those changes more effectively.
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Comments (1)
Do these rules have variations with the type crowdfunding?
New rules have created confusion for the startups and small businesses. Since they usually do not have reliable accounting system, these rules will increase their dependency on the accountants.
These regulations are common for all sorts of crowdfunding in US – be it Reward-based, Equity, or Donation-based funding.
New regulations strengthen CPA’s role as a guide, which was somewhat fading in the recent years.
Crowdfunding has been a controversial subject till now…the rules with securities selling and then getting it past by offering rewards instead of securities…dedicated auditing demands for them. Special rules. Things seems to be settling down with the new regulations.
Disclosure thing with these new regulations is not going to go well many investors. They might have already started looking for loopholes.