The Jumpstart Our Business Startups (JOBS) Act is grabbing media headlines recently.  Advocates for the bill suggest it will stimulate IPOs by removing burdensome regulations.  Critics charge that the regulations are there for a reason, and removing them will set the stage for history to repeat itself.  Most of the attention has been on how the Act will remove many SEC regulations related to IPOs.  Among other things, the Act would 1) relax the restrictions on how small businesses use advertising to solicit investors, 2) increase the minimum number of shareholders and the level of capital raised before an entity must register with the SEC, and 3) allow businesses to use the internet to raise capital from small investors.  I will reference Floyd Norris and The Accounting Onion as two articles that give good reasons for why we might be concerned with this bill.

Not as prominent in the headlines, but more significant for accountants, are the sections in the bill that refer to financial disclosures and accounting pronouncements.  Section 102(b) states:

An emerging growth company may not be required to comply with any new or revised financial accounting standard until such date that a company that is not an issue (as defined under section 2(a) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201(a)) is required to comply with such new or revised accounting standard, if such standard applies to companies that are not issuers.

The Act also states that emerging growth companies would not be subject to mandatory auditor rotations or supplementary auditor disclosures (auditor discussion & analysis), if the PCAOB adopts these standards.

At first glance, these policies might seem reasonable.  The FASB offers delayed effective dates based on the notion that private companies need more time to implement new/revised standards because they do not have the same level of resources as large public companies.  This same argument could be used for emerging public companies.  However, one must be concerned anytime Congress steps into the accounting regulation arena, which seems to be occurring more frequently over the past decades.

Regulators and investor advocates have taken notice.  In a statement to the Senate Committee on Banking, Housing and Urban Affairs, Terri Polley (FAF President) stated that the section in the Act “would direct the standard-setting process in a specific way, by removing the issue of appropriate effective dates for new or revised accounting standards applicable to emerging growth companies from FASB’s thorough, deliberative, independent standard-setting process.”  Similarly, the Center for Audit Quality and the Council of Institutional Investors sent a letter recently that requested the provisions above be removed from the bill because they would compromise the independent standard-setting process.

Regardless of these appeals, the Act enjoys bipartisan support and the House passed the bill on March 8.  The Senate passed a modified version yesterday (March 22), but the modifications did not amend the sections related to accounting.  The modified version will go back to the House, which is expected to pass it, and President Obama stands ready to sign it.  All politicians, regardless of political party, want to show the people in an election year that they are doing everything possible to create jobs.