Is securities crowdfunding going to be impossible for some small businesses?

Got your attention?

Good, because it doesn’t seem that anything else has. Look small businesses, here’s the thing. Congress told the SEC to propose rules for securities crowdfunding. The SEC’s rules have been posted here for a while and the comment period ends in a few days. There have been quite a few comments. Some are sensible, many of them address things that the SEC can’t change (like the $1 million limit – that’s in the statute and the SEC can’t change it) and some of them are advertisements for some book that some dude wrote. Only a couple address a very important issue, which is “basis of accounting.”

OK, I lost you again. I said “accounting.” But this is important. “Basis of accounting” is like the ground rules for putting financial statements together. I don’t want to get into the weeds here, but there are lots of different frameworks for financials. They can be cash-based (you record the revenues and expenses when incurred) or accrual-based (you match revenues to expenses) or some combination of the two approaches. One of the principal frameworks is US GAAP, which is the set of rules that govern financials for companies that report to the SEC. It’s an accrual-based framework.

The SEC has proposed that companies seeking securities crowdfunding prepare their financial statements in US GAAP, but has asked whether they should accept “other comprehensive bases of accounting” (OCBOA). See questions 50-54 in the SEC’s proposing release.

Yes, they should accept OCBOA, and you should tell them so.

Why? Because US GAAP is very detailed and can be very difficult for some small companies to follow. This is an issue for all small companies but it might have the most impact on tech startups. Let’s take just one example, accounting for options. I know many of you have option plans. Look at ASC 718 on FASB’s website (you have to register to access) and tell me whether you can comply with it. I don’t think CrowdCheck could comply, and I’ve been dealing with US GAAP for thirty years now.

There are alternatives to US GAAP, among them the AICPA’s Financial Reporting Framework for SMEs. (#MainStFinancials)

If you agree that US GAAP might be too much of a burden and that OCBOA should be accepted, suggest that to the SEC. Log on here and in your own words tell the SEC to consider OCBOA for companies seeking crowdfunding.

Join CrowdCheck

More Blogs