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Accounting Issues with the JOBS Act

written by: •edited by: Carly Stockwell•updated: 10/4/2013

The Jumpstart Our Businesses Act sounds great in theory. However, many accountants are concerned about the looser regulations in the bill. This may result in less scrutiny of financial practices, which could cost investors.

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    Potential Problems with the JOBS Act When the Jumpstart Our Business Startups (JOBS) Act was signed by President Obama on April 5, 2012, it opened the door for the Securities and Exchange Commission (SEC) to change many of the regulations regarding how companies can raise money and how they file information for an Initial Public Offering (IPO). While these changes were introduced with the intention of helping small businesses raise the capital they need to be successful and therefore help to jumpstart the U.S. economy, many of these clauses put accountants and other financial professionals on edge. The law creates various loopholes and the limits to the protections for investors.

    How the Crowdfunding option is Influencing Company Eecisions

    According to the JOBS Act, companies can use crowdfunding to help raise money for their business. Crowdfunding involves raising smaller amounts of money from large numbers of investors to generate considerable revenue. Companies are now permitted to raise up to $1 million from any given investor before they need to release significant information about the revenue.

    In response to these changes, many companies have noticed the distinct advantage of being a C corporation over an S corporation in the current climate. Since S corporations have limits in the number of investors they can use, they will not be able to make use of the crowdfunding option as much as a C corporation. The minimal financial disclosure required by those using this crowdfunding option means that potential investors will have even less information about the company that they currently take for granted.

    How the New Law Affects IPO Filings

    When Groupon filed for their IPO, publicly released information about their reported profits and expenses quickly generated considerable conversation that resulted in the SEC forcing the company to revise some of their accounting measurements, which reduced their reported revenue by a significant amount. The debacle was caused by some attempts by the company to use interesting accounting practices to make the numbers appear more appealing for investors. Accountants are concerned that the new IPO regulations, which allow companies to file IPO drafts privately with the SEC, may make the situation more common.

    If the drafts submitted to the SEC are submitted privately, the public will not know the numbers used until the filing goes public, which increases the risk of questionable accounting practices slipping under the radar. Those who defend the act say that Groupon is an anomaly, rather than the rule. Those involved in the investing market, however, point out that companies today are filing for an IPO earlier, and with less assets, than in the past. This means that should companies go under, investors will have even fewer protections.

    While most agree that the JOBS Act was passed with the best intentions of giving the economy an extra boost, the potentially unforeseen consequences for investors and the transparency of the entire investment procedure is enough to give many pause. Those involved in accounting and other financial sectors should carefully review the law to be sure they are adequately prepared to handle the changes that are already influencing the market.


  • JOBS Act provisions concern accountants -
  • Frequently Asked Questions About Crowdfunding Intermediaries -
  • 5 Reasons to Be a C Corporation -
  • JOBS Act Jeopardizes Safety Net for Investors -
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