Article written by:
Mike Purcell, CPA
Time to Celebrate! FASB Expands VIE Exception for Private Companies.
Private Companies: Have You Implemented the New Revenue Recognition Standard?
New Standard Applies to Private Companies in 2019 – And It’s Not Revenue Recognition.
Still Adopting the New Revenue Recognition Standard?
Simplifying the Accounting Rules for Convertible Debt and Equity.
These headlines have all been featured in GBQ’s Bottomline newsletter in the calendar year 2019. Whether you’re a finance professional or a user of financial statements, it’s no secret that the accounting landscape is significantly changing. A quick Internet search will return a number of statistics about companies still evaluating the impact of pending changes; another search will return case studies about how the implementation roadmap took much longer than originally anticipated. These changes can be time and resource consuming to evaluate and adopt.
There is some sentiment in the private company space that these reporting changes are more targeted for public companies, whose financial statements are publicly available. “Why do we need to implement, we’re a private company?” “No one sees our financial statements besides our owners and the bank.” Do private companies have justification to skip on the adoption of recent changes just because their financial statements are not widely distributed? Not so, says the SEC.
Recently, the Securities and Exchange Commission has been levying actions against private companies. Notably, action was levied against Credit Karma, for providing stock options to employees but failing to provide financial statements and risk disclosures in a reasonable time prior to the date of exercise of any of those stock options. Credit Karma agreed to civil penalties of $160,000. Other recent actions have been brought forth against private companies for providing misleading or fraudulent financial statements, often in connection with investor transactions. Lyft is currently defending class action lawsuits filed on behalf of pre-IPO investors, which allege investors received materially inaccurate, misleading, and/or incomplete information.
How does the SEC’s jurisdiction reach into the private company space? The answer lies in protecting investors and Rule 701. Specifically, Rule 701(e) requires that any company issuing more than $5 million in securities over a twelve-month period provide, in a reasonable period of time before the date of the sale, detailed financial statements and risk disclosures to the recipients of the securities issued. The SEC has declared they are taking action to protect investors, whether in the public or private space, and will levy appropriate actions against those who breach their fiduciary responsibility.
Issuing financial statements prepared in accordance with generally accepted accounting principles means complying with changes in the accounting landscape and proper disclosure, whether public or private. We can help! In addition to publications and guides, we’re ready to work with you and your teams to navigate the changing landscape and how they specifically apply to your business.