CHALLENGES AND OPPORTUNITIES IN ACCOUNTING FOR CROWDFUNDING FIRMS: EVIDENCE FROM A SURVEY OF REG CF FIRMS AND AUDITORS

Abstract

Startups and early-stage firms often face difficulties in accounting and financial reporting quality compared to larger, public firms. Equity crowdfunding has emerged as an alternative source of financing for these firms, but there remain "knowledge gaps" and "weak spots" in accounting practices used by such firms, particularly in areas such as fair value accounting, intangible assets, research and development costs, share-based compensation expense, and equity instruments. This research examines these knowledge gaps through surveys and semi-structured interviews with Reg CF firms and auditors. The results highlight the need for better understanding of these accounting areas among startup firms, auditors, investors, and regulators when evaluating the reported financial condition of these companies.

External accountants and auditors are crucial for startup ventures, and the benefits of retaining such services outweigh the costs. This paper thus contributes to the literature on equity crowdfunding and emphasizes the importance of high-quality financial reporting in startups and early-stage firms. The findings suggest that regulators can provide clearer standards or more guidance in these accounting areas.