Preparing to raise capital through Regulation Crowdfunding involves more than building a compelling campaign page. Before your offering can move forward, your company may need financial statements that comply with SEC requirements and, depending on the offering, have been reviewed or audited by an independent CPA.
Many founders underestimate how much preparation happens before the CPA review begins. Missing reconciliations, undocumented investments, incomplete equity records and financial statements that are not prepared under U.S. Generally Accepted Accounting Principles can delay the engagement. Therefore, this may ultimately delay the crowdfunding campaign.
This Reg CF CPA review checklist explains the financial records founders should begin organizing before engaging a CPA.
First, Confirm That Your Offering Is Reg CF
Regulation Crowdfunding, commonly called Reg CF, allows eligible companies to offer and sell securities through an SEC-registered broker-dealer or funding portal.
Reg CF is different from donation-based or rewards-based crowdfunding. Campaigns offering products, gifts or other rewards without issuing securities generally do not fall under the same SEC financial-statement requirements.
If your company plans to issue equity, debt, convertible securities or another investment instrument through a platform such as StartEngine, Wefunder or Republic, ask the platform and your securities attorney whether the offering will be conducted under Reg CF.
Determine Whether You Need Reviewed or Audited Financial Statements
The financial reporting requirement depends on factors such as:
- The maximum amount being offered
- Amounts previously offered or sold under Reg CF during the applicable period
- Whether the company previously sold securities under Reg CF
- Whether reviewed or audited financial statements are already available
- The specific requirements imposed by the funding portal
Under current SEC Form C instructions, certain offerings require financial statements reviewed by an independent public accountant, while higher offering levels and certain repeat issuers require audited financial statements.
Because the applicable requirement can change based on the company’s circumstances, founders should confirm the required reporting level with their funding portal and securities attorney before hiring a CPA.
Reg CF CPA Review Document Checklist
The precise request list will depend on your company’s operations and financial history. However, the following records are commonly needed to prepare GAAP financial statements and complete an independent CPA review.
Table of Contents
1. Company and Offering Information
Provide the CPA with background information about the company and the proposed offering, including:
- Legal company name
- State and date of formation
- Employer Identification Number
- Business description
- Proposed funding portal
- Maximum offering amount
- Anticipated campaign-launch date
- Details of previous Reg CF offerings
- Draft Form C or offering documents, if available
- Current organizational chart
- Names of related entities and subsidiaries
This information helps the CPA understand the company, identify the appropriate reporting period and evaluate whether other entities must be considered in the financial statements.
2. Trial Balance and General Ledger
The trial balance provides the ending balance of every general-ledger account, while the general ledger contains the detailed transactions supporting those balances.
Provide:
- Trial balance for each reporting period
- Detailed general ledger
- Chart of accounts
- Prior-year closing entries
- Current-year adjusting entries
- Prior financial statements, if applicable
The trial balance should agree with the financial statements and underlying accounting records.
3. Bank and Credit-Card Reconciliations
Unreconciled cash accounts are one of the most common reasons a CPA review is delayed.
Prepare:
- Bank statements for all business accounts
- Completed bank reconciliations
- Credit-card statements
- Credit-card reconciliations
- Payment-processor statements
- Explanations for old outstanding checks or deposits
- Documentation for transfers between accounts
Balances in the accounting system should reconcile to the corresponding bank, credit-card and payment-platform statements.
4. Revenue Documentation
The CPA must understand how the company earns revenue and when that revenue should be recognized under GAAP.
Depending on your business model, provide:
- Customer contracts
- Sales reports
- Invoices
- Subscription agreements
- Payment-processor reports
- Refund and chargeback reports
- Deferred or unearned revenue schedules
- Accounts-receivable aging
- Revenue-recognition policies
- Details of significant or unusual sales
Deposits collected before a product or service is delivered may need to be recorded as a liability rather than immediate revenue.
5. Accounts Receivable
If customers owed the company money at the financial-statement date, provide:
- Detailed accounts-receivable aging
- Customer invoices
- Subsequent collection information
- Details of disputed balances
- Identification of related-party receivables
- Management’s assessment of potentially uncollectible balances
Old or unsupported receivables may require additional analysis or an allowance for credit losses.
6. Inventory and Cost of Goods Sold
Companies selling physical products should be prepared to support both inventory quantities and inventory valuation.
Provide:
- Detailed inventory listing
- Inventory counts
- Cost calculations
- Vendor invoices
- Inventory-location information
- Cost-of-goods-sold reconciliation
- Details of damaged, obsolete or slow-moving inventory
- Information about inventory held by third parties
- Shipping and fulfillment records, when applicable
Inventory purchased with crowdfunding proceeds or held for future product deliveries must be recorded and classified correctly.
7. Accounts Payable and Accrued Expenses
Provide documentation supporting obligations owed at the end of the reporting period, including:
- Accounts-payable aging
- Unpaid vendor invoices
- Accrued payroll
- Accrued professional fees
- Credit-card liabilities
- Sales-tax liabilities
- Payroll-tax liabilities
- Other unpaid expenses
Founders sometimes omit expenses simply because an invoice was paid after year-end. Under accrual accounting, the expense may still belong in the earlier reporting period.
8. Fixed Assets and Intangible Assets
Provide a schedule of property, equipment and intangible assets that includes:
- Purchase date
- Original cost
- Description of the asset
- Useful life
- Accumulated depreciation or amortization
- Current-year depreciation or amortization
- Disposal information
- Supporting purchase invoices
Software development, website costs, trademarks, patents and other intangible items may require additional analysis. Not every development cost qualifies to be recorded as an asset.
9. Loans, Convertible Notes and SAFEs
Early-stage companies often raise money through instruments that require careful accounting treatment.
Provide:
- Bank loan agreements
- Promissory notes
- Lines-of-credit agreements
- Convertible-note agreements
- Simple Agreements for Future Equity, commonly called SAFEs
- Interest calculations
- Repayment schedules
- Amendments and side agreements
- Details of accrued but unpaid interest
- Documentation of debt conversions
The CPA will need to understand the rights, conversion terms, maturity provisions and other conditions associated with each instrument.
10. Equity and Capital Contributions
Your accounting records should reconcile with the company’s legal ownership records.
Prepare:
- Capitalization table
- Stock ledger
- Ownership schedule
- Articles of incorporation or organization
- Operating agreement or bylaws
- Stock-purchase agreements
- Subscription agreements
- Board approvals
- Documentation of founder contributions
- Documentation of distributions or withdrawals
- Stock-option and equity-compensation records
Unexplained differences between the capitalization table, legal documents and general ledger can create significant delays.
11. Payroll and Contractor Records
Provide:
- Payroll registers
- Forms W-2 and W-3
- Forms 1099
- Quarterly payroll-tax filings
- Year-end payroll-tax filings
- Contractor agreements
- Employee-benefit information
- Accrued payroll schedules
- Equity-based compensation agreements
The CPA may also ask about founders or employees who provided services without receiving normal cash compensation.
12. Related-Party Transactions
A related-party transaction involves the company and someone with a close relationship to the business, such as a founder, owner, officer, family member or affiliated entity.
Identify:
- Loans from founders or owners
- Loans to founders or owners
- Payments made on behalf of the company
- Company payments of personal expenses
- Transactions with affiliated companies
- Rent paid to an owner-controlled entity
- Services purchased from related parties
- Unpaid founder compensation
These transactions may require separate presentation or disclosure in the financial-statement notes.
13. Legal Matters and Commitments
Provide information about matters that could create an obligation or require disclosure, including:
- Pending or threatened litigation
- Regulatory matters
- Guarantees
- Purchase commitments
- Significant contracts
- Lease agreements
- Contingent liabilities
- Intellectual-property disputes
- Communications from attorneys concerning material matters
The CPA may request additional information depending on the nature and significance of the matter.
14. Subsequent Events
A subsequent event is a significant transaction or event occurring after the financial-statement date but before the statements are available to be issued.
Examples include:
- New financing
- Issuance of debt or equity
- Settlement of litigation
- Loss of a major customer
- Acquisition of another business
- Significant new contracts
- Business closure or restructuring
- Material casualty or loss
- Launch of the crowdfunding offering
Tell your CPA about significant developments occurring after year-end, even if they have not yet been recorded in the accounting system.
15. Information Needed for GAAP Footnote Disclosures
A complete set of GAAP financial statements includes more than a balance sheet and income statement. It generally includes:
- Balance sheet
- Statement of operations or comprehensive income
- Statement of cash flows
- Statement of changes in stockholders’ equity
- Notes to the financial statements
The notes explain significant accounting policies, debt, equity, related-party transactions, commitments, subsequent events and other matters necessary to understand the company’s financial position.
Providing only QuickBooks reports without the required statements and disclosures may not satisfy the applicable Reg CF financial-reporting requirement.
Common Problems That Delay a Reg CF CPA Review
The following issues frequently slow down a crowdfunding CPA engagement:
- Bank accounts have not been reconciled
- Personal and business transactions are mixed
- The capitalization table does not agree with the accounting records
- SAFE and convertible-note agreements are missing
- Revenue was recorded when cash was received without considering GAAP
- Inventory does not reconcile to the general ledger
- Founder contributions were incorrectly recorded as revenue
- Loans were incorrectly classified as equity
- Prior-period financial statements contain unresolved balances
- Related-party transactions were not identified
- GAAP footnote information is incomplete
- Management waits until immediately before the campaign launch to contact a CPA
Correcting these matters after the CPA review begins can increase the cost of the engagement and affect the campaign schedule.
How Early Should You Contact a CPA?
Founders should contact a CPA before selecting a firm launch date—especially when the company’s records require cleanup or conversion to GAAP.
A well-prepared company may move through the process more efficiently, but the timeline depends on:
- Number of reporting periods
- Complexity of the company
- Condition of the accounting records
- Availability of supporting documentation
- Number and type of financing instruments
- Responsiveness of management
- Whether financial-statement preparation is needed
- Whether a review or audit is required
Starting early provides time to identify accounting problems, prepare the financial statements and respond to CPA inquiries without unnecessarily delaying the offering.
What Happens During the CPA Review?
A CPA review provides limited assurance. It is substantially narrower in scope than an audit and primarily involves analytical procedures and inquiries of management.
During the engagement, the CPA may:
- Develop an understanding of the company and its accounting practices
- Compare current and prior-period balances
- Analyze financial relationships and unusual fluctuations
- Ask management about significant transactions
- Evaluate whether the financial statements appear consistent with GAAP
- Obtain written representations from management
- Issue an independent accountant’s review report
A review does not provide an audit opinion and is not designed to provide reasonable assurance that the financial statements are free from material misstatement.
Prepare Before Your Campaign Is Ready to Launch
A crowdfunding campaign can attract investors, expand a company’s reach and provide access to growth capital. However, financial-statement problems can bring the process to a halt.
Preparing the accounting records early allows your CPA to focus on the review instead of spending valuable time identifying missing information, reconciling old balances or correcting avoidable accounting errors.
If your company is preparing for a Reg CF offering through StartEngine, Wefunder, Republic or another registered funding portal, Tafe can help you determine the appropriate financial-statement service and prepare for the engagement.
Need reviewed or audited financial statements for a Reg CF campaign?
Learn more about Tafe’s crowdfunding CPA services.
Schedule a consultation before setting your campaign-launch date so there is enough time to evaluate your records, address accounting issues and complete the required financial reporting.
This article is provided for general educational purposes and does not constitute legal or investment advice. Companies should consult their securities attorney and funding portal regarding the requirements applicable to a specific offering.
Official Resources
Crowdfunding has opened doors for many innovators and dreamers, allowing them to turn their visions into reality. But as the funds start pouring in, so do the responsibilities. One of the most crucial aspects of managing a successful crowdfunding campaign is ensuring your financial statements are accurate, transparent, and trustworthy. This is where a CPA (Certified Public Accountant) review becomes invaluable.
SEC Regulation Crowdfunding Overview