The Role of the CPA in a Crowdfunding Future
In 2010, many sectors of the U.S. economy began to improve from the Great Recession—however, small businesses lagged behind, largely as a result of having trouble raising the capital they needed in a still tenuous financial recovery.
This led to the advent of a concept called crowdfunding. Crowdfunding—inspired by crowdsourcing—describes the collective cooperation, attention and trust by people who network and pool their money together, usually via the Internet, in order to support efforts initiated by other people or organizations.
These crowdfunding platforms have already proven to be a viable alternative for raising capital to fund small businesses and start-ups. Almost $1.5 billion was raised by crowdfunding platforms worldwide in 2011, representing more than 1 million successful fund-raising campaigns; and it is estimated that amount will grow to more than $2.8 billion in 2012.
Thanks to a few dedicated individuals, the CrowdFund Investing framework was signed into law as part of the 2012 JOBS Act. This allows the crowdfunding industry in the U.S. to extend to investment-based crowdfunding, which permits the online sale of securities, largely to unaccredited investors, through licensed and registered intermediaries called portals. These portals will be registered with the SEC and FINRA.
We are entering a unique moment in time when web applications are starting to democratize capital formation and financial services.
Companies will be required to undergo independent accounting reviews or audits (depending on the amount raised) and filings with the SEC. Still, many questions remain and critics have said it goes too far in scaling back important protections for investors.
These changes will have significant impact to the accounting profession. CPAs working with small-business clients may be required to provide audits or financial statements unique to those that use crowdfunding. A whole new suite of investment options may be developed for the clients of CPAs offering financial advisory services and an opportunity exists for CPAs to continue to work hand-in-hand with the startup community to ensure that good ideas are not only getting funded, but that they have a long-term plan in place to grow their businesses.
With more investors to communicate with, these companies will need an effective document management system that offers enhanced transparency and simultaneous access to critical documents. The organization and professional presentation of key documents, such as financial statements, will be vital to driving the fundraising process, improving buyer confidence and meeting investor expectations.
The JOBS Act legislated that the SEC and the self-regulatory organization for equity-based crowdfunding would have 270 days to write rules which would govern these investments and the portal community that will be used. Portals cannot conduct any crowdfunding for equity business until the rulemaking phase is complete.
As this process continues to play out, the AICPA will continue to offer resources and training to CPAs to ensure they have the information they need to advise their clients. The AICPA is hosting a webinar, The JOBS Act: Jumpstarting Capital Formation for Emerging Companies, from 11 a.m. to 12 p.m. on Sept. 25, which will explore the details of the JOBS Act.
Michael Ramos, Director of CPE and Training, American Institute of CPAs. Mike sets the strategic direction and manages operations of the professional development business unit at the AICPA. He combines his understanding of technical audit and accounting issues with his communication skills and experience to advance AICPA CPE offerings. He is the author of many books and training courses on SOX 404, internal control and other auditing matters.
Crowdfunding image via Shutterstock.