What Every Accountant Should Know About Crowdfunding

As an accountant it is very important that you should be knowledgeable about crowdfunding. Crowdfunding is one of the best ways for a business to get the capital they need in quick time. Usually in crowdfunding, a number of people invest small amounts of money in a business or a project collectively.

There are a number of online crowdfunding sites that connect investors – who are ordinary people around the world – with businesses that need help. In many crowdfunding projects, investors have little idea of the businesses involved – they invest only because they are excited by the business idea. Crowdfunding has lots of benefits for business owners, but there are few important things about crowdfunding that every accountant or CPA should know about.

CPAs usually get involved in a crowdfunding project when there is a huge investment made in a business, not just from the traditional funders such as private equity, angel investors and financial institutions, but from a multitude of small investors brought together by the crowdfunding platform. But this is not as simple as it appears at first glance; there are a few important things CPAs should know about.

Regulations Related to Crowdfunding

The SEC has issued certain important guidelines on crowdfunding which every accountant should know about. The changes made by the SEC are according to the Jumpstart Our Business Startups (JOBS) Act. The new regulations are expected to make it easier for crowdfunding sites to raise capital.  They require a much higher level of financial disclosure from the part of the businesses that seek funds through this method.  The new regulations have also thrown a lot of responsibilities in the way of CPAS and accountants.

Let’s have a quick look at some of the important changes.

 1. Regulation CF (Title III Crowdfunding)

All offerings that are higher than $100,000 must be reviewed by a CPA. Crowdfunding offerings that are higher than $500,000 should be audited by a CPA.

 2. Regulation A+ (Title IV) Crowdfunding

All tier 2 offerings made at a crowdfunding site have to be audited by a CPA firm.

 3. New Auditing Standards  

The new rules require CPAs to prepare a full set of financial statements that are in accordance with the United States Generally Accepted Auditing Standards (GAAS).  Also, from now on, for higher crowdfunding offerings, SEC rules apply with respect to crowdfunding projects rather than that of the AICPA.

What Does This Mean for Accounting Professionals?

The new regulations are expected to bring a plenty of new opportunities for CPAs, as they are going to be trusted with critical tasks such as preparation of financial statements and consulted on a range of issues related to taxation.

 CPAs would now be responsible to guide businesses through their crowdfunding projects and make sure that the business owners are fully cognizant of the SEC regulations.

CPAS are required to make businesses aware of the increased business risks associated with the new financial disclosures needed to be made and guide them through the challenges and opportunities that the crowdfunding offerings are likely to throw up.