3 Things CPAs Need to Understand about Crowdfunding

If a client came to you 10 years ago with an innovative idea for a new product, such as a winter coat that is warmer and lighter than any other on the market—you might say “Great idea. How will you fund development of a prototype?” Back then seeking funding was not yet a simple task. But in 2016, there are myriad crowdfunding sites available to help would-be entrepreneurs take their ideas and make them a reality. As a CPA, you are in a position to help ensure your client seeks this funding properly and in a fiscally responsible manner.

You may not yet be familiar with the rules and regulations surrounding crowdfunding, but the U.S. Securities and Exchange Commission released new rules in May. These guidelines, along with revisions last year to the existing Regulation A rules, expand the opportunities for small business capital raising by simplifying requirements for small businesses to access the capital markets. Both rules were issued by the Securities and Exchange Commission under the Jumpstart Our Business Startups (JOBS) Act.

The revisions to Regulation A and new Regulation Crowdfunding rules offer exciting opportunities for CPAs and their clients. However, it is important that CPAs be well-versed in the intricacies of these rules prior to beginning these engagements. Here are three things you need to know to better serve your clients in this area:

Companies raising funds under the new rules are subject to increasing levels of financial disclosure. These requirements range from simply providing tax-return based information to supplying full set of financial statements prepared in accordance with U.S. generally accepted accounting principles. The applicable requirements are determined based on the size of the offering.

Depending on the type of issuance and level of the offering, varying levels of assurance on financial statements may be required. In some cases, an audit is required. The audit may be conducted under the standards of the Public Company Accounting Oversight Board (PCAOB) or U.S. generally accepted auditing standards.

If your client chooses PCAOB standards, the audit must still be performed in accordance with U.S. GAAS. Again, in some instances depending upon the type of issuance and level of offering, the auditor may be required to comply with the SEC’s auditor independence rules, rather than the AICPA’s auditor independence rules.

For more information, watch this video, where I provide an overview of the rules. In addition, the AICPA’s Crowdfunding and Regulation A+ webpage contains up-to-date information on the rules, including summary documents.

Now when your client reaches out to her family and friends requesting funds to support her new product with the help of a crowdfunding website, she will have confidence that she is abiding by the SEC’s rules, thanks to your help.

Lisa Joseph, CPA, Technical Manager- Peer Review, American Institute of CPAs.

Crowdfunding image courtesy of Shutterstock

3 Things CPAs Need to Understand about Crowdfunding

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