November 26, 2013
In response to 78 FR 66449 68. Should we require that all audits be conducted by PCAOB-registered firms? Why or why not?
Costs related to the due diligence that goes along with raising capital, whether from a bank, or the public at large, are necessary. The spirit of the JOBS Act was a "carving out" of the current rules, to benefit new, small businesses.
Allowing audits to be conducted by firms not registered with the PCAOB goes along with this spirit of the law. The fees associated with engaging the largest accounting firms who currently provide opinions on financial statements of America's largest public companies, are typically over and above what an issuer under the crowdfunding rules would be able to afford. Additionally, non PCAOB-registered firms can be smaller businesses themselves.
While quality control concerns would be an issue, there can be additional disclosures provided by an accounting firm regarding it's experience with other crowdfunding issuers, as well as including the firm's peer review report on the funding portal's website.
Fraud can still occur even when one of the big 4 accounting firms has audited the financial statements of a corporation, and the SEC has been able to prosecute negligent accountants. As far as investor protection, audit standards provide an excellent baseline for testing financial information, and hopefully the multiple levels of checks involved with the funding portal exclusivity, audit opinions, and "wisdom of the crowd" will help maintain a high level of integrity in the system.