Management accounting / auditing


Rules on crowdfunding proposed by the SEC would create opportunities for startups and small, private businesses to raise cash through internet-aided sales of securities—and would create opportunities for work by CPAs.

SEC commissioners voted 5–0 to propose the rules that are designed to comply with a provision of the Jumpstart Our Business Startups (JOBS) Act of 2012, P.L. 112-106, whose purpose is to create easier access to capital for small businesses. The rules are available at tinyurl.com/k5g42ot.

Crowdfunding gives companies the ability to raise funds by attracting relatively small amounts of money from large numbers of people and often takes place over the internet. In coming up with the rules, the SEC attempted to create protections for investors while enabling businesses to use crowdfunding effectively.

Raising money through crowdfunding already occurs in artistic endeavors, for example, where small contributions or donations are rewarded with a token of value related to the project. Contributors may be rewarded with tickets to a film, identification in the film’s credits, or prepurchase of a finished product such as a music CD. A number of websites such as kickstarter.com exist to fund such projects. Not-for-profits also engage in crowdfunding to generate donations.

The crowdfunding the SEC proposal addresses would create a framework for allowing startups and small businesses to raise capital through securities offerings using the internet. The JOBS Act permits internet-based platforms to facilitate the offer and sale of securities without having to register with the SEC as brokers.

The proposed rules would:

  • Exclude certain companies from participating in crowdfunding. Non-U.S. companies, companies that already report to the SEC, and certain investment companies would be among those excluded.
  • Limit the amount that a business can raise through crowdfunding to $1 million in a 12-month period.
  • Limit how much an individual can invest in crowdfunding, based on the individual’s annual income or net worth. The limit would be the greater of $2,000 or 5% of annual income or net worth if the annual income or net worth of the investor is less than $100,000. Investors with an annual income or net worth of $100,000 or more could invest 10% of their annual income or net worth, with the investment not to exceed $100,000. Securities purchased in a crowdfunding transaction could not be resold for one year.
  • Require that crowdfunding investments take place through SEC-registered intermediaries, which can be broker-dealers or new entities called “funding portals” that facilitate the offer and sale of securities. Intermediaries would be required to provide investors with educational material about risks, the issuer, and the offering.
  • Require certain disclosures that the issuers would file with the SEC and disclose to the intermediary and investors. These would include information about officers, directors, and certain owners of the issuer; a description of the issuer’s business; a description of the terms of the offering, such as the use of proceeds and the price to the public of the securities being offered; and certain related-party transactions.
  • Require issuers to provide financial statements prepared in accordance with U.S. GAAP.


Auditing or review of the financial statements may be necessary, depending on the amount of the crowdfunding offering. A tiered system in the proposal would require:

  • Certification of the financial statements by the principal executive officer for offerings of $100,000 or less. These issuers would also be required to provide regulators with income tax returns for the most recently completed fiscal year.
  • A review of the financial statements by an independent accountant for offerings of more than $100,000 but not more than $500,000.
  • An audit of the financial statements by an independent auditor for offerings of more than $500,000.

Public comment on the rules is due Feb. 3 and can be submitted through the SEC’s website at tinyurl.com/kxpsgzp. If the rules are approved, crowdfunding would provide CPAs with opportunities to provide numerous services to clients, including education about the process, controller services, corporate advisory services, wealth management, and investor advice. Small business CFOs, meanwhile, would be able to tap into a new potential source of funds.

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