independent public accountant (rather than certain tax return
information for the most recently completed fiscal year and
financial statements certified by the principal executive officer).
See Section II.B.1.a.ii for a discussion of the financial statement
requirements.
    \172\ Section II.B.1.c discusses the amendment and
reconfirmation requirements.
---------------------------------------------------------------------------

    We do not believe it is necessary for us to prescribe how
oversubscribed offerings must be allocated if the issuer is required to
disclose, at the commencement of the offering, how shares in
oversubscribed offerings will be allocated. Commenters were supportive
of this approach,\173\ and we believe this disclosure should provide
investors with important information while maintaining flexibility for
issuers to structure the offering as they believe appropriate.
---------------------------------------------------------------------------

    \173\ See, e.g., CFA Institute Letter; RoC Letter; RocketHub
Letter; Wilson Letter.
---------------------------------------------------------------------------

    We believe that investors in a crowdfunding transaction will
benefit from clear disclosure about their right to cancel, the
circumstances under which an issuer may close an offering early and the
need to reconfirm the investment commitment under certain
circumstances, as they will be more aware of their rights to rescind an
investment commitment. Therefore, we are adopting disclosure
requirements covering these points, as proposed.
(e) Offering Price
    Consistent with Section 4A(b)(1)(G), we proposed in Rule 201(l) of
Regulation Crowdfunding to require an issuer to disclose the offering
price of the securities or, in the alternative, the method for
determining the price, so long as before the sale each investor is
provided in writing the final price and all required disclosures.
    Commenters were supportive of the proposed disclosure \174\ and we
are adopting the offering price disclosure rules as proposed.\175\ We
believe that disclosure of the price or the methods used for
determining the price, coupled with investors' rights to cancel their
investment upon determination of the final price, provide sufficient
opportunity for investors to evaluate the price.
---------------------------------------------------------------------------

    \174\ See, e.g., CFA Institute Letter; Wilson Letter. As
discussed below, however, a few commenters recommended that the
Commission require a fixed price at the commencement of an offering.
See, e.g., Joinvestor Letter; RocketHub Letter. We address those
comments in Section II.B.6.
    \175\ See Rule 201(l) of Regulation Crowdfunding.
---------------------------------------------------------------------------

(f) Ownership and Capital Structure
(i) Proposed Rules
    Consistent with Section 4A(b)(1)(H), we proposed in Rule 201(m) of
Regulation Crowdfunding to require an issuer to provide a description
of its ownership and capital structure. This disclosure would include:
     The terms of the securities being offered and each other
class of security of the issuer, including the number of securities
being offered and those outstanding, whether or not such securities
have voting rights, any limitations on such voting rights, how the
terms of the securities being offered may be modified and a summary of
the differences between such securities and each other class of
security of the issuer, and how the rights of the securities being
offered may be materially limited, diluted or qualified by the rights
of any other class of security of the issuer;
     a description of how the exercise of the rights held by
the principal shareholders of the issuer could affect the purchasers of
the securities;
     the name and ownership level of persons who are 20 Percent
Beneficial Owners;
     how the securities being offered are being valued, and
examples of methods for how such securities may be valued by the issuer
in the future, including during subsequent corporate actions;
     the risks to purchasers of the securities relating to
minority ownership in the issuer and the risks associated with
corporate actions including additional issuances of securities, issuer
repurchases of securities, a sale of the issuer or of assets of the
issuer or transactions with related parties; and
     a description of the restrictions on the transfer of the
securities.
    As proposed, the rules would require disclosure of the number of
securities being offered and those outstanding, whether or not such
securities have voting rights, any limitations on such voting rights
and a description of the restrictions on the transfer of the
securities.
(ii) Comments on the Proposed Rules
    A number of commenters supported the proposed ownership and capital
structure disclosure rules,\176\ while two commenters opposed them as
burdensome.\177\ One of these

commenters suggested that issuers should only be required to disclose
the price of a share and the percentage ownership represented by a
share, and noted that the principals of an issuer conducting a
crowdfunding offering may not consider the issuer's capital structure
or whether its shareholders will have voting rights.\178\
---------------------------------------------------------------------------

    \176\ See, e.g., CFA Institute Letter; Commonwealth of
Massachusetts Letter; Hackers/Founders Letter; Joinvestor Letter;
NASAA Letter; RocketHub (supporting only to the extent that such
disclosures do not require additional form submission or accountant
or legal work); Saunders Letter; Wilson Letter.
    \177\ See Campbell R. Letter; Schatz Letter.
    \178\ Schatz Letter.
---------------------------------------------------------------------------

(iii) Final Rules
    We are adopting the ownership and capital structure disclosure
rules as proposed, with the addition of language specifying that
beneficial ownership must be calculated no earlier than 120 days prior
to the date of the filing of the offering statement or report,\179\
consistent with the treatment of beneficial ownership elsewhere in the
rule.\180\ Investors in crowdfunding transactions will benefit from
clear disclosure about the terms of the securities being offered and
each other class of security of the issuer. The final rules require
disclosure of the number of securities being offered and those
outstanding, whether or not such securities have voting rights, any
limitations on such voting rights \181\ and a description of the
restrictions on the transfer of securities.\182\ Although Section
4A(b)(1)(H) does not specifically call for all aspects of this
disclosure, we believe that such disclosure is necessary to provide
investors with a more complete picture of the issuer's capital
structure than would be obtained solely pursuant to the statutory
requirements. This should help investors better evaluate the terms of
the offer before making an investment decision.
---------------------------------------------------------------------------

    \179\ See Rule 201(m) of Regulation Crowdfunding.
    \180\ See Rule 201(c) of Regulation Crowdfunding.
    \181\ Id.
    \182\ See Rule 501 of Regulation Crowdfunding and Section II.E.2
for a discussion of restrictions on resales.
---------------------------------------------------------------------------

(g) Additional Disclosure Requirements
(i) Proposed Rules
    We also proposed to require the following additional disclosures:
\183\
---------------------------------------------------------------------------

    \183\ Section 4A(b)(1)(I) provides us with discretion to require
crowdfunding issuers to provide additional information for the
protection of investors and in the public interest.
---------------------------------------------------------------------------

     Disclosure of the name, SEC file number and Central
Registration Depository number (``CRD number'') (as applicable) \184\
of the intermediary through which the offering is being conducted;
---------------------------------------------------------------------------

    \184\ The Financial Industry Regulatory Authority, Inc.
(``FINRA'') issues CRD numbers to registered broker-dealers.
---------------------------------------------------------------------------

     disclosure of the amount of compensation paid to the
intermediary for conducting the offering, including the amount of any
referral or other fees associated with the offering;
     certain legends in the offering statement;
     disclosure of the current number of employees of the
issuer;
     a discussion of the material factors that make an
investment in the issuer speculative or risky;
     a description of the material terms of any indebtedness of
the issuer, including the amount, interest rate, maturity date and any
other material terms;
     disclosure of any exempt offerings conducted within the
past three years; and
     disclosure of related-party transactions since the
beginning of the issuer's last fiscal year in excess of five percent of
the aggregate amount of capital raised by the issuer in reliance on
Section 4(a)(6) during the preceding 12-month period, inclusive of the
amount the issuer seeks to raise in the current offering.
(ii) Comments on the Proposed Rules
    Identity of the Intermediary. Several commenters supported the
proposed requirement that issuers identify the intermediary through
which the offering is being conducted.\185\ Two commenters opposed such
a requirement as unnecessary.\186\
---------------------------------------------------------------------------

    \185\ See, e.g., Commonwealth of Massachusetts Letter;
Joinvestor Letter; Schwartz Letter; Wilson Letter (recommending that
issuers also disclose whether the intermediary specializes in
offerings based on criteria such as industry size or type).
    \186\ See Public Startup Letter 2; RocketHub.
---------------------------------------------------------------------------

    Compensation Paid to the Intermediary. Some commenters supported
the proposed requirement that issuers disclose the amount of
compensation paid to the intermediary for conducting the offering,
including the amount of any referral or other fees associated with the
offering.\187\ One commenter noted that to the extent components of the
intermediary's fee are percentage based, the exact amount of the
compensation may not be calculable at the onset of an offering.\188\ A
few commenters recommended that issuers also should disclose all
payments and fees, if any, they make to the intermediary.\189\
---------------------------------------------------------------------------

    \187\ See, e.g., ASSOB Letter; Commonwealth of Massachusetts
Letter; RocketHub Letter; Startup Valley Letter; Wilson Letter. But
see, e.g., Grassi Letter (opposing the requirement unless offering
proceeds will be used to compensate the intermediary); Public
Startup Letter 2; Schwartz Letter.
    \188\ See RocketHub Letter.
    \189\ See, e.g., ASSOB Letter (recommending disclosure of all
payments); RocketHub Letter (recommending disclosure of fees paid
for compliance and overhead to enhance transparency for investors).
---------------------------------------------------------------------------

    Legends. Comments were mixed as to the proposed requirement that
issuers include specified legends in the offering statement about the
risks of investing in a crowdfunding transaction and the required
ongoing reports. Some commenters supported such a requirement,\190\
while others opposed the requirement.\191\
---------------------------------------------------------------------------

    \190\ See, e.g., ABA Letter; CFA Institute Letter; Commonwealth
of Massachusetts Letter; Jacobson Letter; Schwartz Letter; Wilson
Letter.
    \191\ See, e.g., Grassi Letter (recommending that general risks
be disclosed on the intermediaries' platforms rather than in each
issuer's offering statement); Hackers/Founders Letter (noting that
crowdfunding issuers will tend to be smaller and lack the resources
of large companies, and intermediaries should be required to provide
examples of risks associated with crowdfunding offerings); Public
Startup Letter 2; Startup Valley Letter (stating that a legend by
the issuer about the risks of investing in a crowdfunding
transaction is not needed because it is the responsibility of the
intermediary to educate the public about this information).
---------------------------------------------------------------------------

    Current Number of Employees. While several commenters supported the
proposed requirement that issuers disclose their current number of
employees,\192\ two commenters opposed such a requirement.\193\ One
commenter opposed this requirement, noting that the number of employees
is not useful for investors in evaluating early-stage startups, and is
likely to increase during the course of a crowdfunding offering
conducted concurrently with an offering pursuant to Rule 506(c).\194\
This commenter also noted that many early-stage startups spend the
majority of their initial funds on consultants.\195\ Another commenter
noted that it may be unreasonably costly, relative to the benefit
gained, to accurately count the number of employees in instances where
businesses engage many contract workers, or have workers on
arrangements such as ``flex-time'' or ``half-time.'' \196\
---------------------------------------------------------------------------

    \192\ See, e.g., NASAA Letter; Wilson Letter; Zhang Letter.
    \193\ See Schwartz Letter; Wefunder Letter.
    \194\ See Wefunder Letter.
    \195\ Id.
    \196\ See Schwartz Letter.
---------------------------------------------------------------------------

    Risk Factors. Commenters were divided as to the proposed
requirement that issuers discuss the material factors that make an
investment in the issuer speculative or risky. A number of commenters
supported this proposed requirement,\197\ while a number of others
opposed it.\198\ Some commenters

recommended that we provide examples of, or develop standard
disclosures for, issuer risk factor discussions.\199\
---------------------------------------------------------------------------

    \197\ See, e.g., ASSOB Letter; CFA Institute Letter;
Commonwealth of Massachusetts Letter; Consumer Federation Letter;
EMKF Letter; Jacobson Letter; McGladrey Letter; STA Letter;
StartupValley Letter; Wilson Letter.
    \198\ See, e.g., ABA Letter; Campbell R. Letter; Cole A. Letter;
Grassi Letter; Hackers/Founders Letter; RocketHub Letter
(recommending that a generic 500-word statement suffice); Schwartz
Letter; Scruggs Letter.
    \199\ See, e.g., Commonwealth of Massachusetts Letter; EMKF
Letter; Heritage Letter (recommending also that the Commission
define ``material''); Jacobson Letter; SBA Office of Advocacy
Letter. But see, StartupValley Letter (opposing such a
recommendation).
---------------------------------------------------------------------------

    Indebtedness. Commenters supported the proposed requirement that
issuers describe the material terms of any indebtedness of the
issuer.\200\ Two commenters recommended that we clarify that this
disclosure requirement could be satisfied if the issuer includes such
disclosure in its financial statements.\201\ Another recommended that
we require issuers to disclose the identities of their creditors.\202\
---------------------------------------------------------------------------

    \200\ See, e.g., Consumer Federation Letter; ODS Letter;
Schwartz Letter; Wilson Letter.
    \201\ See Grassi Letter; EY Letter.
    \202\ See ODS Letter.
---------------------------------------------------------------------------

    Prior Exempt Offerings. Commenters supported the proposed
requirement that issuers disclose their prior exempt offerings.\203\
One commenter recommended that we require additional disclosure to help
non-accredited investors understand how well aligned their interests
are with earlier accredited investors,\204\ while other commenters
suggested scaling back this disclosure in order to contain costs.\205\
---------------------------------------------------------------------------

    \203\ See, e.g., CFA Institute Letter (recommending a brief
statement about prior capital raising transactions); Commonwealth of
Massachusetts Letter; Grassi Letter; Joinvestor Letter; ODS Letter;
Parsont Letter; RoC Letter (supporting the disclosure covering the
past three years); RocketHub Letter (recommending disclosure of
successful prior offerings only); Whitaker Chalk Letter
(recommending that the disclosure exclude the target amount of any
offerings made in reliance on Section 4(a)(6) and whether such
target was reached); Wilson Letter. But see, e.g., Heritage Letter;
Public Startup Letter 2; Schwartz Letter; Wefunder Letter.
    \204\ See Parsont Letter.
    \205\ See, e.g., Grassi Letter (recommending disclosure of only
the date, amount raised, type of securities sold and a link to a Web
site where more information on such prior offerings can be found);
Wefunder Letter (recommending disclosure of only the aggregate
capital raised in all prior exempt transactions, as well as the
date, terms, valuation of and types of securities issued in the most
recent exempt offering).
---------------------------------------------------------------------------

    Related-Party Transactions. Commenters generally supported our
proposal to require disclosure of certain related-party transactions
between the issuer and any director or officer of the issuer, any
person who is a 20 Percent Beneficial Owner, any promoter of the issuer
(if the issuer was incorporated or organized within the past three
years) or immediate family members of the foregoing persons.\206\
Rather than using the definition of ``immediate family member''
contained in Item 404 of Regulation S-K,\207\ one commenter recommended
that we use a common definition for ``immediate family member'' in the
related-party transactions context and ``member of the family of the
purchaser or the equivalent'' in the resale restrictions context.\208\
---------------------------------------------------------------------------

    \206\ See, e.g., AICPA Letter (recommending disclosure of
transactions between the issuer and 10 percent beneficial owners);
Commonwealth of Massachusetts Letter; Grassi Letter (also
recommending disclosure of transactions between the issuer and
employees or affiliated entities with common ownership or control);
NASAA Letter; RocketHub Letter; Wilson Letter. But see, Public
Startup Letter 2; Schwartz Letter.
    \207\ 17 CFR 229.404.
    \208\ See Brown J. Letter. See also, Section II.E.2 for a
discussion of the restrictions on resales.
---------------------------------------------------------------------------

    One commenter supported the proposal to limit the disclosure of
related-party transactions to transactions since the beginning of the
issuer's last fiscal year.\209\ Other commenters recommended that the
related-party transaction disclosure cover the period for which
financial statements are required.\210\ In addition, one commenter
supported the proposal to limit disclosure of related-party
transactions based on the size of the offering,\211\ while a few
commenters suggested alternatives to such proposal.\212\
---------------------------------------------------------------------------

    \209\ See RocketHub Letter.
    \210\ See AICPA Letter; Grassi Letter.
    \211\ See AICPA Letter.
    \212\ See, e.g., Grassi Letter (recommending disclosure of all
related-party transactions not deemed de minimis); NASAA Letter
(recommending a lower percentage threshold); RocketHub Letter
(recommending a fixed threshold).
---------------------------------------------------------------------------

    Other Disclosures. Several commenters specifically recommended that
we not require any additional disclosures.\213\ One commenter pointed
out that there was no ``catch-all'' clause requiring any other material
information not specifically enumerated in Rule 201 of Regulation
Crowdfunding.\214\
---------------------------------------------------------------------------

    \213\ See, e.g., ABA Letter; Public Startup Letter 2; RocketHub
Letter; Schwartz Letter.
    \214\ See CrowdCheck Letter 1.
---------------------------------------------------------------------------

    Other commenters recommended that we require issuers to disclose
general information; \215\ executive compensation; \216\ zoning issues
and issues with the Environmental Protection Agency or Food and Drug
Administration; \217\ a copy of their articles of incorporation; \218\
the extent to which they are affected by market risk, material
contracts, business backlogs and the names of, and number of shares
being sold by, existing shareholders; \219\ and the credit history of
the business and the business owners.\220\
---------------------------------------------------------------------------

    \215\ See, e.g., ODS Letter; STA Letter; Tiny Cat Letter. Such
general information may include the issuer's contact information;
agent for service; information about the manner in which ownership
interests will be evidenced; who will be providing record keeping
services; where records of ownership will be maintained; and/or
statements that the issuer may not provide account statements and
that investors will have the responsibility of monitoring their
investments, communicating with the record keeper and updating their
information with the record keeper.
    \216\ See, e.g., Arctic Island Letter 4; Denlinger Letter 1
(recommending disclosure of deferred compensation, stock options or
warrants, contingent payments for services, shareholder and other
related-party loans and contingent liabilities); Grassi Letter
(recommending separate amounts for base salary, bonus and an
``other'' category for the three highest paid individuals and the
number and type of equity instruments granted); NASAA Letter; RFPIA
Letter (recommending inclusion of owners' compensation).
    \217\ See, e.g., Arctic Island Letter 4.
    \218\ See, e.g., Hackers/Founders Letter.
    \219\ See, e.g., CFA Institute Letter.
    \220\ See, e.g., SBM Letter.
---------------------------------------------------------------------------

    As discussed in Section II.B.2 below in connection with ongoing
annual reports, a number of commenters recommended ways to make it
easier for investors to locate an issuer's annual reports.\221\
---------------------------------------------------------------------------

    \221\ See, e.g., Arctic Island Letter 5; CFA Institute Letter
(recommending advance notice as to when and where annual reports
will be available); RocketHub Letter.
---------------------------------------------------------------------------

(iii) Final Rules
    We are adopting the additional disclosure requirements as proposed
in Rule 201 with several modifications. As discussed below, we have
added a requirement to disclose any material information necessary in
order to make the statements made, in light of the circumstances under
which they were made, not misleading.\222\ We also have modified the
rule to require disclosure of the compensation to be paid to the
intermediary so that it could be disclosed either as a dollar amount or
percentage of the offering amount or as a good faith estimate if the
exact amount is not available at the time of the filing.\223\ We also
have added a requirement to disclose the location on the issuer's Web
site where investors will be able to find the issuer's annual report
and the date by which such report will be available on the issuer's Web
site.\224\ In addition, we have added a requirement to disclose whether
the issuer or any of its predecessors previously has failed to comply
with the ongoing reporting requirements of Regulation
Crowdfunding.\225\
---------------------------------------------------------------------------

    \222\ See Rule 201(y) of Regulation Crowdfunding.
    \223\ See Rule 201(o) of Regulation Crowdfunding.
    \224\ See Rule 201(w) of Regulation Crowdfunding.
    \225\ See Rule 201(x) of Regulation Crowdfunding.
---------------------------------------------------------------------------

    We agree with the suggestion by some commenters that issuers should
not be required to disclose in multiple places the information required
to be provided

to investors.\226\ As a result, to avoid duplicative disclosure, an
issuer will not be required to repeat what is already provided
elsewhere in the issuer's disclosure, including the financial
statements.\227\ Issuers may cross-reference within the offering
statement or report, including to the location of the information in
the financial statements.\228\
---------------------------------------------------------------------------

    \226\ See, e.g., EY Letter (noting that certain required
disclosure would be included in an issuer's financial statements);
Grassi Letter (same).
    \227\ See Instruction to Item 201 of Regulation Crowdfunding.
    \228\ Id.
---------------------------------------------------------------------------

    Identity of the Intermediary. Despite the suggestion of one
commenter that this disclosure is unnecessary,\229\ we believe
requiring an issuer to identify the name, SEC file number and CRD
number (as applicable) of the intermediary through which the offering
is being conducted should assist investors and regulators in obtaining
information about the offering and use of the exemption.\230\ It also
could help investors obtain background information on the intermediary,
for instance, through filings made by the intermediary with the
Commission, as well as through the Financial Industry Regulatory
Authority's (``FINRA'') BrokerCheck system for broker-dealers \231\ or
a similar system, if created, for funding portals.
---------------------------------------------------------------------------

    \229\ See RocketHub Letter.
    \230\ See Rule 201(n) of Regulation Crowdfunding.
    \231\ See FINRA, FINRA BrokerCheck, available at http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/P015175.
---------------------------------------------------------------------------

    Compensation Paid to the Intermediary. Requiring an issuer to
disclose the amount of compensation paid to the intermediary for
conducting the offering, including the amount of any referral or other
fees associated with the offering, will permit investors and regulators
to determine how much of the proceeds of the offering is used to
compensate the intermediary. Based on a comment received,\232\ we
understand that in some instances the exact amount of compensation and
fees to be paid to the intermediary will not be known at the time the
Form C is filed, and we have modified the rule from the proposal to
address this issue. Consistent with this understanding, and to avoid
suggesting that only amounts certain and paid to date must be
disclosed, the final rules require disclosure of all compensation paid
or to be paid to the intermediary for conducting the offering, which
may be disclosed as a dollar amount or as a percentage of the offering
amount. If the exact amount of the compensation paid or to be paid is
not available at the time of the filing, issuers are permitted to
provide a good faith estimate.\233\
---------------------------------------------------------------------------

    \232\ See RocketHub Letter.
    \233\ See Rule 201(o)(1) of Regulation Crowdfunding.
---------------------------------------------------------------------------

    In addition, we are modifying the rule text from the proposal to
require issuers to disclose any other direct or indirect interest in
the issuer held by the intermediary, or any arrangement for the
intermediary to acquire such an interest.\234\ The proposed rules would
have prohibited an intermediary from holding any financial interest in
the issuers conducting offerings on its platforms. However, as
discussed in Section II.C.2.b below, the final rules permit
intermediaries to hold such interests. We believe that, similar to the
amount of compensation paid to the intermediary, an intermediary's
interests in an issuer and the issuer's transaction could be material
to an investment decision in the issuer. Therefore, we believe that
issuers should disclose such interests to investors.
---------------------------------------------------------------------------

    \234\ See Rule 201(o)(2) of Regulation Crowdfunding.
---------------------------------------------------------------------------

    Legends. We are adopting this requirement as proposed.\235\ The
requirement for an issuer to include in the offering statement
specified legends about the risks of investing in a crowdfunding
transaction is intended to help investors understand the general risks
of investing in a crowdfunding transaction. We continue to believe,
despite the suggestions of some commenters,\236\ that requiring legends
in each issuer's offering statement, regardless of any general warnings
available on an intermediary's platform, will provide additional
investor protection with minimal costs. For example, the requirement
that an issuer include in the offering statement certain legends about
the required ongoing reports, including how those reports will be made
available to investors and how an issuer may terminate its ongoing
reporting obligations, will help investors understand an issuer's
ongoing reporting obligations and how they will be able to access those
reports.
---------------------------------------------------------------------------

    \235\ See Item 2 of General Instruction III to Form C.
    \236\ See, e.g., Grassi Letter; Hackers/Founders Letter; Public
Startup Letter 2; Startup Valley Letter.
---------------------------------------------------------------------------

    Current Number of Employees. Consistent with the proposal and the
recommendation of several commenters,\237\ the final rules require
disclosure of the current number of employees.\238\ We believe this
disclosure is important to investors in evaluating a crowdfunding
transaction because it will give investors a sense of the size of the
issuers using the exemption. We expect that the early-stage issuers who
are likely to use securities-based crowdfunding will not have many
employees, so we do not believe this requirement will be unreasonably
burdensome.
---------------------------------------------------------------------------

    \237\ See, e.g., NASAA Letter; Wilson Letter; Zhang Letter.
    \238\ See Rule 201(e) of Regulation Crowdfunding.
---------------------------------------------------------------------------

    Risk Factors. We are adopting this disclosure requirement as
proposed.\239\ While some commenters expressed concerns about potential
expenses or confusion associated with risk disclosure,\240\ we agree
with those commenters who indicated that disclosure of the material
factors that make an investment in the issuer speculative or risky is
important to help investors understand the risks of investing in a
specific issuer's offering.\241\ To help investors to better understand
these risks, we believe that risk factor disclosure should be tailored
to the issuer's business and the offering and should not repeat the
factors addressed in the required legends.\242\ For similar reasons, we
are not providing examples of, or developing standard disclosure for,
issuer risk factor discussions, as we believe issuers will be in the
best positions to articulate the risks associated with their business
and offerings in light of their particular facts and circumstances.
---------------------------------------------------------------------------

    \239\ See Rule 201(f) of Regulation Crowdfunding.
    \240\ See, e.g., Campbell R. Letter; Cole A. Letter; Grassi
Letter; Hackers/Founders Letter; RocketHub Letter; Schwartz Letter;
Scruggs Letter.
    \241\ See, e.g., ASSOB Letter; CFA Institute Letter;
Commonwealth of Massachusetts Letter; Consumer Federation Letter;
EMKF Letter; Jacobson Letter; McGladrey Letter; STA Letter;
StartupValley Letter; Wilson Letter.
    \242\ See Item 2 of General Instruction III to Form C.
---------------------------------------------------------------------------

    Indebtedness. Consistent with the proposal, we are adopting the
requirement to provide a description of the material terms of any
indebtedness of the issuer.\243\ We believe disclosure of the material
terms of any indebtedness of the issuer, including, among other items,
the amount, interest rate and maturity date of the indebtedness, is
important to investors because servicing debt could place additional
pressures on an issuer in the early stages of development. We expect
that for many issuers this information will be included in the
financial statements, which will satisfy this reporting
requirement.\244\
---------------------------------------------------------------------------

    \243\ See Rule 201(p) of Regulation Crowdfunding.
    \244\ See Instruction to Rule 201 of Regulation Crowdfunding;
Items 1 and 3 of General Instruction III to Form C.
---------------------------------------------------------------------------

    While one commenter recommended that we require issuers to disclose
the

identities of their creditors,\245\ we do not believe, as a general
matter, that such disclosure would provide meaningful information to
investors. Accordingly, under the final rules, such disclosure is
required only to the extent the creditor's identity is a material
aspect of the indebtedness.\246\
---------------------------------------------------------------------------

    \245\ See ODS Letter.
    \246\ See Rule 201(y) of Regulation Crowdfunding.
---------------------------------------------------------------------------

    Prior Exempt Offerings. Consistent with the proposal and with
commenters' recommendations, we are requiring issuers to provide
disclosure about the exempt offerings that they conducted within the
past three years.\247\ For each exempt offering within the past three
years, issuers must describe the date of the offering, the offering
exemption relied upon, the type of securities offered and the amount of
securities sold and the use of proceeds.\248\ We believe that
information about prior offerings will better inform investors about
the capital structure of the issuer and will provide information about
how prior offerings were valued.
---------------------------------------------------------------------------

    \247\ See Rule 201(q) of Regulation Crowdfunding.
    \248\ See Instruction to paragraph (q) of Rule 201 of Regulation
Crowdfunding.
---------------------------------------------------------------------------

    Related-Party Transactions. We are adopting this disclosure
requirement substantially as proposed.\249\ Related-party transactions
create potential conflicts of interest that may result in actions that
benefit the related parties at the expense of the issuer or the
investors. After considering the comments received, we continue to
believe the related-party transactions disclosure will assist investors
in obtaining a more complete picture of the financial relationships
between certain related parties and the issuer and provide additional
insight as to potential uses of the issuer's resources, including the
proceeds of the offering. The final rule differs from the proposal in
that an issuer is required to disclose transactions with any person who
is, as of the most recent practicable date but no earlier than 120 days
prior to the date the offering statement or report is filed, the
beneficial owner of 20 percent or more of the issuer's outstanding
voting equity securities. Limiting the relevant period to 120 days
prior to the date of the offering statement or report is consistent
with the treatment of beneficial ownership elsewhere in Regulation
Crowdfunding.\250\ We also believe this limitation and the consistency
it provides will help limit compliance costs for issuers.
---------------------------------------------------------------------------

    \249\ See Rule 201(r) of Regulation Crowdfunding.
    \250\ See, e.g., Rules 201(c) and 201(m) of Regulation
Crowdfunding.
---------------------------------------------------------------------------

    The final rule also includes an instruction to clarify that, for
purposes of Rule 201(r), a transaction includes, but is not limited to,
any financial transaction, arrangement or relationship (including any
indebtedness or guarantee of indebtedness) or any series of similar
transactions, arrangements or relationships.\251\ This instruction is
consistent with Item 404 of Regulation S-K.\252\
---------------------------------------------------------------------------

    \251\ See Instruction 2 to Rule 201(r) of Regulation
Crowdfunding.
    \252\ See Instruction 2 to Item 404(a) of Regulation S-K [17 CFR
229.404(a)].
---------------------------------------------------------------------------

    Given the early stage of development of the small businesses and
startups that we expect will seek to raise capital pursuant to Section
4(a)(6), as well as the investment limits prescribed by the rules, we
believe that limiting the disclosure of related-party transactions to
transactions occurring since the beginning of the issuer's last fiscal
year, as proposed, will help to limit compliance costs for issuers
while still providing investors with sufficient information to evaluate
the relationship between related parties and the issuer.\253\ In
addition, we are requiring issuers to disclose only related-party
transactions that, in the aggregate, are in excess of five percent of
the aggregate amount of capital raised by the issuer in reliance on
Section 4(a)(6) during the preceding 12-month period, inclusive of the
amount the issuer seeks to raise in the current offering under Section
4(a)(6). We also have added an instruction to clarify that any series
of similar transactions, arrangements or relationships should be
aggregated for purposes of determining whether related-party
transactions should be disclosed.\254\ For example, an issuer seeking
to raise $1 million will be required to disclose related-party
transactions that, in the aggregate, are in excess of $50,000, which is
the same dollar threshold required in Form 1-A \255\ for offerings of
any size made pursuant to Tier 1 of Regulation A,\256\ and an issuer
that raises $250,000 will be required to disclose such transactions in
excess of $12,500. We believe that, in light of the sizes and varieties
of issuers that may make offerings in reliance on Section 4(a)(6), this
approach could mitigate the potential for the requirement to be
disproportionate to the size of certain offerings and issuers. While
one commenter suggested we use a percentage threshold less than five
percent, we believe this threshold appropriately takes into
consideration the need to provide investors with relevant information
about the issuer's activities involving related parties during this
crucial early stage of development.
---------------------------------------------------------------------------

    \253\ We note, however, that financial statements covering the
two most recently completed fiscal years will include disclosure of
related-party transactions, as required by U.S. GAAP, for each of
the years presented.
    \254\ See Instruction 1 to Rule 201(r) of Regulation
Crowdfunding.
    \255\ 17 CFR 239.900
    \256\ 17 CFR 230.251 through 230.263
---------------------------------------------------------------------------

    As suggested by one commenter,\257\ in a change from the proposal,
we are adopting a definition for ``member of the family'' in the
related-party transactions context that is consistent with the
definition of ``member of the family of the purchaser or the
equivalent'' in the resale restrictions context.\258\ The final rule
defines ``member of the family'' as a ``child, stepchild, grandchild,
parent, stepparent, grandparent, spouse or spousal equivalent, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-
law, or sister-in-law, [including] adoptive relationships'' of any of
the persons identified in Rules 201(r)(1), (r)(2) or (r)(3).\259\ This
definition tracks the definition of ``immediate family'' in Exchange
Act Rule 16a-1(e),\260\ but with the addition of ``spousal
equivalent,'' which the final rule defines to mean ``a cohabitant
occupying a relationship generally equivalent to that of a spouse.''
\261\ We believe a common definition of ``member of the family'' that
is consistent with our disclosure rules in other contexts \262\ will
provide certainty for issuers in identifying the persons covered by the
rule.
---------------------------------------------------------------------------

    \257\ See Brown J. Letter.
    \258\ See Rule 501(a) of Regulation Crowdfunding;
    \259\ See Rule 201(r)(4) of Regulation Crowdfunding.
    \260\ 17 CFR 240.16a-1(e).
    \261\ See Rule 201(r)(4) of Regulation Crowdfunding.
    \262\ See, e.g., Exchange Act Rule 16a-1(e).
---------------------------------------------------------------------------

    Other Disclosures. We are adopting this provision as proposed but
with the addition of three issuer disclosure requirements in response
to comments received.
    The first is a requirement that an issuer disclose the location on
its Web site where investors will be able to find the issuer's annual
report and the date by which such report will be available on its Web
site.\263\ We believe this requirement addresses the concern expressed
by commenters that investors may not know where to find an issuer's
annual report. We do not believe physical delivery of the annual report
is necessary due to the electronic nature of the crowdfunding
marketplace, nor do we believe that email delivery of the annual report
is practical because the

issuer may not have access to email addresses of its investors.
Instead, we are requiring issuers to disclose this information in the
offering statement, which will assist investors in locating the
information while limiting the compliance costs for issuers.
---------------------------------------------------------------------------

    \263\ See Rule 201(w) of Regulation Crowdfunding. See also,
Section II.B.2 for a discussion of the requirement on issuers to
post their annual reports on their Web sites.
---------------------------------------------------------------------------

    The second additional disclosure requirement, as suggested by a
commenter,\264\ is a requirement that the disclosure include any
material information necessary in order to make the statements made, in
light of the circumstances under which they were made, not
misleading.\265\ This provision should help ensure that investors have
all of the material information they need on which to base their
investment decisions.
---------------------------------------------------------------------------

    \264\ See CrowdCheck Letter 1.
    \265\ See Rule 201(y) of Regulation Crowdfunding.
---------------------------------------------------------------------------

    The third additional requirement, similar to suggestions from some
commenters,\266\ requires the issuer to disclose whether it or any of
its predecessors previously failed to comply with the ongoing reporting
requirements of Regulation Crowdfunding.\267\ While we continue to
believe, and the final rules provide, that only those issuers that have
failed to file their two most recent annual reports should be
prohibited from relying on the exemption available under Section 4A(6),
we also believe that any history of non-compliance with ongoing
reporting obligations would provide important information to investors
about the issuer.
---------------------------------------------------------------------------

    \266\ See Grassi Letter; RocketHub Letter.
    \267\ See Rule 201(x) of Regulation Crowdfunding.
---------------------------------------------------------------------------

    Although we appreciate that commenters made various suggestions for
additional issuer disclosure requirements, such as those relating to
executive compensation, market risk and material contracts, we are not
mandating further disclosures. In adopting issuer requirements for
Regulation Crowdfunding, we have been mindful of the limited resources
and start-up operations of issuers likely to use security-based
crowdfunding and have sought to consider the need to provide investors
with relevant information to make an informed investment decision while
limiting the compliance costs for issuers. We believe the issuer
disclosure requirements we are adopting along with other protections,
such as investment limits, achieve this goal.
(2) Financial Disclosure
    Section 4A(b)(1)(D) requires ``a description of the financial
condition of the issuer.'' It also establishes a framework of tiered
financial disclosure requirements based on aggregate target offering
amounts of the offering and all other offerings made in reliance on
Section 4(a)(6) within the preceding 12-month period.
(a) Financial Condition Discussion
(i) Proposed Rules
    Consistent with Section 4A(b)(1)(D), we proposed in Rule 201(s) of
Regulation Crowdfunding to require an issuer to provide a narrative
discussion of its financial condition.
(ii) Comments on the Proposed Rules
    Commenters generally supported the proposed requirement that
issuers provide a narrative discussion of their financial
condition.\268\ One commenter expressed concern that the requirement
could be challenging for issuers at an early stage of development and
result in duplicative disclosure.\269\ The same commenter suggested
that issuers be encouraged, rather than mandated, to discuss material
historical operating results.\270\
---------------------------------------------------------------------------

    \268\ See, e.g., ABA Letter; CFA Institute Letter; CFIRA Letter
5; Commonwealth of Massachusetts Letter; Grassi Letter; Jacobson
Letter; Joinvestor Letter; Saunders Letter. But see, e.g., EY
Letter; Public Startup Letter 2; RocketHub Letter.
    \269\ See EY Letter.
    \270\ Id.
---------------------------------------------------------------------------

(iii) Final Rules
    We are adopting this requirement as proposed, with a few technical
modifications.\271\ Rule 201(s) clarifies that the description must
include, to the extent material, a discussion of liquidity, capital
resources and historical results of operations. Rule 201(s) also
includes an instruction noting that issuers will be required to include
a discussion of each period for which financial statements are provided
and a discussion of any material changes or trends known to management
in the financial condition and results of operations of the issuer
subsequent to the period for which financial statements are
provided.\272\ In connection with this instruction, an issuer will need
to consider whether more recent financial information is necessary to
make the disclosure in the offering document not misleading. The
instruction in final Rule 201(s) was included in proposed Rule 201(t)
as an instruction to the financial statement requirements, but we have
moved this instruction to Rule 201(s) because it elicits narrative
disclosure that we believe is more appropriately presented as part of
the discussion of the issuer's financial condition. In addition,
another instruction clarifies that references to the issuer in Rule
201(s) refer to the issuer and its predecessors, if any.\273\
---------------------------------------------------------------------------

    \271\ See Rule 201(s) of Regulation Crowdfunding.
    \272\ See Instruction 1 to Rule 201(s) of Regulation
Crowdfunding.
    \273\ See Instruction 4 to Rule 201(s) of Regulation
Crowdfunding.
---------------------------------------------------------------------------

    We expect that the discussion required by the final rule and
instructions will inform investors about the financial condition and
results of operations of the issuer by providing management's
perspective on the issuer's operations and financial results, including
information about the issuer's liquidity and capital resources and any
known trends or uncertainties that could materially affect the
company's results. Because issuers seeking to engage in crowdfunding
transactions will likely be smaller, less complex and at an earlier
stage of development than issuers conducting registered offerings or
Exchange Act reporting companies, we expect that the discussion
generally will not, contrary to the concern of at least one
commenter,\274\ need to be as lengthy or detailed as the management's
discussion and analysis of financial condition and results of
operations of those issuers. Accordingly, we are not prescribing a
specific content or format for this information, but instead set forth
general principles for making this disclosure.\275\ The discussion
should address, to the extent material, the issuer's historical results
of operations in addition to its liquidity and capital resources. If an
issuer does not have a prior operating history, the discussion should
focus on financial milestones and operational, liquidity and other
challenges. If an issuer has a prior operating history, the discussion
should focus on whether historical earnings and cash flows are
representative of what investors should expect in the future. An
issuer's discussion of its financial condition should take into account
the proceeds of the offering and any other known or pending sources of
capital. Issuers also should discuss how the proceeds from the offering
will affect their liquidity, whether these funds and any other
additional funds are necessary to the viability of the business and how
quickly the issuer anticipates using its available cash. In addition,
issuers should describe the other available sources of capital to the
business, such as lines of credit or required contributions by
principal shareholders. To the extent these items of disclosure overlap
with the issuer's discussion of its business or business plan, issuers
are not required to make

duplicate disclosures.\276\ While we are not mandating a specific
presentation, we expect issuers to present the required disclosures,
including any other information that is material to an investor, in a
clear and understandable manner.
---------------------------------------------------------------------------

    \274\ See EY Letter.
    \275\ See Instructions 1 and 2 to Rule 201(s) of Regulation
Crowdfunding.
    \276\ See Instruction to Rule 201 of Regulation Crowdfunding.
---------------------------------------------------------------------------

(b) Financial Disclosures
(i) Proposed Rules
    Proposed Rule 201(t) of Regulation Crowdfunding would have
established financial statement disclosure requirements that are based
on aggregate target offering amounts within the preceding 12-month
period:
     Issuers offering $100,000 or less would be required to
file with the Commission and provide to investors and the relevant
intermediary income tax returns filed by the issuer for the most
recently completed year (if any) and financial statements that are
certified by the principal executive officer to be true and complete in
all material respects;
     issuers offering more than $100,000, but not more than
$500,000, would be required to file with the Commission and provide to
investors and the relevant intermediary financial statements reviewed
by a public accountant that is independent of the issuer; and
     issuers offering more than $500,000 would be required to
file with the Commission and provide to investors and the relevant
intermediary financial statements audited by a public accountant that
is independent of the issuer.
    Under proposed Rule 201(t), issuers would be permitted to
voluntarily provide financial statements that meet the requirements for
a higher aggregate target offering amount.
    The proposed rules also would have set forth the following
requirements for the financial statements:
     Basis of Accounting. All issuers would be required to file
with the Commission and provide to investors and the relevant
intermediary a complete set of their financial statements (balance
sheets, income statements, statements of cash flows and statements of
changes in owners' equity), prepared in accordance with U.S. generally
accepted accounting principles (``U.S. GAAP'').
     Public Accountant Requirements. To qualify as independent
of the issuer, a public accountant would be required to comply with the
Commission's independence rules, which are set forth in Rule 2-01 of
Regulation S-X.\277\
---------------------------------------------------------------------------

    \277\ 17 CFR 210.2-01.
---------------------------------------------------------------------------

     Periods Covered in the Financial Statements. The financial
statements would be required to cover the shorter of the two most
recently completed fiscal years or the period since inception of the
business.
     Age of Financial Statements. During the first 120 days of
the issuer's fiscal year, an issuer would be able to conduct an
offering in reliance on Section 4(a)(6) and the related rules using
financial statements for the fiscal year prior to the most recently
completed fiscal year if the financial statements for the most recently
completed fiscal year are not otherwise available or required to be
filed.
     Review and Audit Standards. Reviewed financial statements
would be required to be reviewed in accordance with the Statements on
Standards for Accounting and Review Services (``SSARS'') issued by the
American Institute of Certified Public Accountants (``AICPA''). Audited
financial statements would be required to be audited in accordance with
the auditing standards issued by either the AICPA or the Public Company
Accounting Oversight Board (``PCAOB'').
     Review and Audit Reports. Issuers would be required to
file with the Commission and provide to investors and the relevant
intermediary a copy of the public accountant's review or audit report.
An issuer that received an adverse opinion or disclaimer of opinion in
its audit report would not be in compliance with the audited financial
statement requirements.
     Exemptions from the Financial Statement Requirements. The
proposed rules would not exempt any issuers from the financial
statement requirements.
(ii) Comments on the Proposed Rules
    Commenters were divided on the proposed financial statement
requirements,\278\ although commenters generally supported allowing
issuers to voluntarily provide financial statements that meet the
requirements for a higher aggregate target offering amount.\279\
---------------------------------------------------------------------------

    \278\ For an example of those who generally supported the
proposed financial disclosure requirements, see, e.g., ABA Letter
(recommending some modifications); CFA Institute Letter;
Commonwealth of Massachusetts Letter; Consumer Federation Letter
(the financial information is critical to an informed evaluation of
the investment opportunity); Denlinger Letter 1; Funderbuddies
Letter; NASAA Letter.
    For an example of those who generally opposed, see, e.g., AEO
Letter; Joinvestor Letter (recommending that only issuer-generated
documents produced in good faith be required); Marsala Letter;
RocketHub (stating that ``requirements are excessive in cost and
misguided in intent''); Traklight Letter (recommending that instead
of pre-raise and ongoing financial statement reviews or audits,
issuers only be required to have a limited review engagement on the
use of proceeds after the raise); Zhang Letter.
    \279\ See, e.g., AICPA Letter; Denlinger Letter 1; Grassi
Letter; Heritage Letter; RocketHub Letter; Wilson Letter. But see
Public Startup Letter 2.
---------------------------------------------------------------------------

    Offerings of $100,000 or less. In general, commenters supported
requiring issuers to provide financial statements certified by the
principal executive officer to be true and complete in all material
respects.\280\ Further, several recommended that all issuers relying on
the Section 4(a)(6) exemption be required to provide such
certification.\281\
---------------------------------------------------------------------------

    \280\ See, e.g., AICPA Letter; Zeman Letter.
    \281\ See, e.g., AICPA Letter; Denlinger Letter 1; Grassi
Letter; Jacobson Letter. But see Public Startup Letter 2.
---------------------------------------------------------------------------

    Commenters were divided on the requirement that issuers offering
$100,000 or less file and provide to investors their federal income tax
returns. Supporters of the tax return requirement noted that income tax
returns would be a source of credible information for investors that
should be readily available without requiring issuers to bear
significant additional preparation expenses.\282\ On the other hand,
opponents of the tax return requirement raised concerns about
privacy,\283\ identity theft and tax fraud.\284\ One commenter
expressed concern that small issuers may not be adequately prepared to
consider the patchwork of state and federal privacy laws that might
apply to the disclosure of tax returns.\285\
---------------------------------------------------------------------------

    \282\ See, e.g., Angel Letter 1 (``tax returns are even more
credible than audited financial statements, as companies are highly
unlikely to exaggerate profitability to the IRS.''); Fund Democracy
Letter; NPCM Letter; Zeman Letter (``the small risk for these
investors does not meet the consideration of audited financial
statements.'').
    \283\ See, e.g., AICPA Letter (disclosing an issuer's tax return
``. . . has the potential to cause serious problems. Tax returns are
intended to be confidential and should remain so.''); Public Startup
Letter 2; RocketHub Letter; SBM Letter; Wilson Letter (personal
income tax information should be on a voluntary basis only); Zhang
Letter.
    \284\ See AICPA Letter.
    \285\ See AICPA Letter.
---------------------------------------------------------------------------

    Several commenters suggested approaches to allow access by
investors to the information available from a tax return,\286\
including permitting issuers to digitally submit the data from their

tax return in a standardized format.\287\ Supporters of digital
submission suggested that approach would provide a standardized format
and protect issuers from accidental disclosure of confidential
information. Commenters generally supported the proposal to require
issuers to redact personally identifiable information from their tax
returns,\288\ although some requested clarifications.\289\
---------------------------------------------------------------------------

    \286\ See, e.g., Arctic Island Letter 5 (recommending that only
the two primary pages and not the schedules be made public);
CrowdBouncer Letter (recommending the Commission allow issuers to
disclose electronic transcripts of filed tax returns to investors
through the intermediary platforms); NPCM (expressing concern that
unless tax returns are filed as a PDF stamped by the IRS, there is
no way to know if the posted document is a true reflection of the
tax return); RocketHub Letter.
    \287\ See, e.g., RocketHub Letter (suggesting digital submission
``will protect the issuers from accidental disclosure of
confidential information, and will allow investors to view the
information in a structured and consistent manner. For example, if
each issuer were to upload their version of a financial statement,
the responsibility of learning to understand each format would fall
to the investor. Standardized formats for financial projections,
financial statements, and business plans will allow investors to
quickly compare issuances and more readily evaluate investment
opportunities.''); Zhang Letter.
    \288\ See, e.g., ABA Letter; AICPA Letter; Fund Democracy
Letter; Whitaker Chalk Letter.
    \289\ See, e.g., ABA Letter (recommending the Commission provide
a non-exhaustive list of the specific types of information that may
be redacted); AICPA Letter (recommending that if the tax return
requirement is adopted, the Commission define ``personally
identifiable information'' and clarify that the redaction includes
third-party information).
---------------------------------------------------------------------------

    Two commenters recommended that the timing of financial statement
disclosures correspond to any extended tax filing deadlines,\290\ while
two other commenters opposed such application.\291\ Further, a few
commenters supported the proposal to permit an issuer that has not yet
filed its tax return for the most recently completed fiscal year to use
the tax return filed for the prior year and update the information
after filing the tax return for the most recently completed fiscal
year.\292\ One commenter recommended that at least one tax return be
available,\293\ and another recommended that the Commission provide
guidance for issuers who have not filed a U.S. tax return.\294\ One
commenter supported requiring issuers to describe any material changes
that are expected in the tax returns for the most recently completed
fiscal year,\295\ while another recommended that such disclosure be
permitted, but not required.\296\
---------------------------------------------------------------------------

    \290\ See EY Letter; Grassi Letter.
    \291\ See, e.g., ASSOB Letter (recommending that issuers should
provide their tax accounts within three months of the end of the
reporting period); Fund Democracy Letter.
    \292\ See, e.g., Grassi Letter; RocketHub Letter.
    \293\ See Fund Democracy Letter.
    \294\ See AICPA Letter.
    \295\ See Grassi Letter.
    \296\ See RocketHub Letter (also recommending that the
Commission define what qualifies as a material change).
---------------------------------------------------------------------------

    A number of commenters recommended raising the maximum offering
amount for issuers that provide this level of financial
information.\297\
---------------------------------------------------------------------------

    \297\ See, e.g., Hackers/Founders Letter ($500,000); Kickstarter
Coaching Letter ($250,000); RocketHub Letter ($500,000); Zeman
Letter (recommending that offerings under $500,000 require two years
of tax returns and unaudited balance sheets).
---------------------------------------------------------------------------

    Offerings of more than $100,000 but not more than $500,000. Some
commenters supported the requirement in the proposed rules that
offerings of more than $100,000 but not more than $500,000 include
financial statements reviewed by an independent public accountant,\298\
while other commenters opposed such requirement.\299\ A number of
commenters recommended a different range of offering amounts or methods
for determining when an issuer is required to file and provide reviewed
financial statements.\300\
---------------------------------------------------------------------------

    \298\ See, e.g., Denlinger Letter 1; Leverage PR Letter (stating
that the industry will evolve to provide lower cost reviews);
StartEngine Letter 1 (stating that the industry will evolve to
provide lower cost reviews, such as in the $1,500-$10,000 range for
smaller, newer companies).
    \299\ See, e.g., Angel Letter 1 (recommending requiring audited
financial statements if they are available and tax returns if they
are not); Arctic Island Letter 5 (recommending only for issuers that
have greater than $15 million in annual revenue); Johnston Letter;
McGladrey Letter (recommending only after the issuer meets certain
revenue and operational thresholds); NACVA Letter; Public Startup
Letter 2; Zeman Letter.
    \300\ See, e.g., ABA Letter; CIFRA Letter 5 (noting the
financial disclosure standards of the SBA's Section 8(a) program
require reviewed financial statements for companies with gross
annual receipts for $2 million to $10 million); Grassi Letter
($300,000 to $700,000); Kickstarter Coaching Letter ($250,000 to $1
million).
---------------------------------------------------------------------------

    Offerings of more than $500,000. We received extensive comments on
our proposal that issuers offering more than $500,000 be required to
file with the Commission and provide to investors and the relevant
intermediary financial statements audited by an independent public
accountant. A significant number of those commenters opposed the
proposed requirement,\301\ although some commenters expressed
support.\302\ Some commenters recommended the elimination of the audit
requirement,\303\ and others recommended that we consider additional
criteria for determining when an issuer would be required to provide
audited financial statements.\304\ A number of commenters opposed the
proposed $500,000 threshold as being too low,\305\ and a number
recommended alternative thresholds.\306\ A number of commenters stated
that funding the upfront cost of an audit would be particularly
difficult for issuers raising capital for the first time.\307\
---------------------------------------------------------------------------

    \301\ See, e.g., AEO Letter; Angel Letter 1; AWBC Letter; CFIRA
Letter 5; CfPA Letter; CrowdFundConnect Letter; EarlyShares Letter;
EMKF Letter; EY Letter; Finkelstein Letter; FundHub Letter 1;
Generation Enterprise Letter; Fryer Letter; Grassi Letter; Graves
Letter; Guzik Letter 1; Hakanson Letter; Holland Letter; Johnston
Letter; Kickstarter Coaching Letter; McGladrey Letter; Milken
Institute Letter; NACVA Letter; NFIB Letter; NPCM Letter; NSBA
Letter; PBA Letter; Reed Letter; RocketHub Letter; Saunders Letter;
SBA Office of Advocacy Letter; SBEC Letter; SBM Letter; Seyfarth
Letter; WealthForge Letter; Wefunder Letter; Woods Letter; Zeman
Letter.
    \302\ See, e.g., AICPA Letter; Consumer Federation Letter; CSTTC
Letter; Denlinger Letter 2; FundDemocracy Letter; Leverage PR; NASAA
Letter; StartEngine Letter 1.
    \303\ See, e.g., CrowdFundConnect Letter; FundHub Letter 1;
Johnston Letter; SBEC Letter; StartupValley Letter (for issuers less
than two years old); Woods Letter.
    \304\ See, e.g., Angel Letter 1 (only if such financial
statements are available); Arctic Island Letter 5 (only apply to
issuers that have greater than $15 million in revenue); EY Letter
(only if issuer has raised $5 million in equity securities in
crowdfunding transactions unless audited financial statements are
otherwise available); McGladrey Letter (eliminate the audit
requirements until the issuer meets certain revenue and operational
thresholds); Reed Letter (if an audit is required, the requirement
only apply to issuers that reach a certain size in investment or
investors); RocketHub Letter ($5 million offering amount and the
issuer has been in operation for more than two years). But see AICPA
Letter (additional criteria would add complexity without any
additional benefit).
    \305\ See, e.g., ABA Letter; CCA Letter; CFIRA Letter 5; CfPA
Letter; CrowdFundConnect Letter; EarlyShares Letter; EMKF Letter; EY
Letter; FundHub Letter 1; Generation Enterprise Letter; Grassi
Letter; Graves Letter; Guzik Letter 1; Kickstarter Coaching Letter;
Milken Institute Letter; NFIB Letter; PBA Letter; RocketHub Letter;
SBA Office of Advocacy Letter; SBM Letter; Seyfarth Letter;
WealthForge Letter; Wefunder Letter; Woods Letter. But see AICPA
Letter; Denlinger Letter 1; Fund Democracy Letter; Zeman Letter.
    \306\ See, e.g., ABA Letter ($750,000); EarlyShares Letter ($1
million); EMKF Letter ($800,000); EY Letter ($5 million, unless
audited financial statements are otherwise available); Grassi Letter
($700,000); Graves Letter ($900,000); Guzik Letter 1 ($700,000);
Kickstarter Coaching Letter ($1 million); PBA Letter ($1 million);
RocketHub Letter ($5 million and the issuer has been in operation
for more than two years); Seyfarth Letter ($1 million); WealthForge
Letter ($1 million).
    \307\ See, e.g., AEO Letter (expressing concern that start-up
businesses with no revenue to date, and raising capital for the
first time, would find it difficult or impossible to fund the cost
of an audit); AWBC Letter; CFIRA Letter 5 (stating that the proposed
level of financial disclosure for capital raises over $500,000 would
be an impediment for small business when many will have limited
financial resources to absorb the expense prior to raising capital
using crowdfunding); CfPA Letter (suggesting the Commission
determine an alternate audit threshold because ``the costs of an
audit must necessarily be incurred prior to an offering, and in the
numerous expected cases of unsuccessful offerings, would lead to
substantial net losses to the businesses that Crowdfunding is
supposed to help''); EMKF Letter (stating that many of the issuers
looking to raise capital through crowdfunding will be startups with
little or no revenue to afford audited financial statements);
Generation Enterprise Letter; Grassi Letter; Graves Letter; Holland
Letter; McGladrey Letter; NSBA Letter; Reed Letter (noting that few
start-ups could afford auditing fees); RocketHub Letter (stating
that the filing and audit requirements establish an upfront cost
that is too high for small businesses to accept); SBM Letter (noting
that many startups do not have the resources to obtain audited
financials); Seyfarth Letter (stating that the audit requirement
will deny access to issuers who do not have the necessary upfront
capital); WealthForge Letter; Wefunder Letter.

---------------------------------------------------------------------------

    We received a number of comments expressing concern about the
anticipated costs associated with audited financial statements.\308\
Other commenters noted that costs would be lower than those estimated
in the Proposing Release or in other comment letters.\309\
---------------------------------------------------------------------------

    \308\ See, e.g., AEO Letter; CfPA Letter; CFIRA Letter 5;
CrowdCheck Letter 4; ErrandRunner Letter; Finkelstein Letter;
FundHub Letter 1 (stating that the difference in cost for reviewed
versus audited financial statements could easily run into tens of
thousands of dollars); Graves Letter (stating that a partner from a
leading accounting firm predicted the cost to small businesses of
providing audited financial statements could be upwards of $18,000
to $25,000); Grassi Letter (stating that audits take more time than
companies seeking capital may have); NFIB Letter; RocketHub Letter;
SBA Office of Advocacy Letter; SBEC Letter; SBM Letter; Seyfarth
Letter; StartupValley Letter (stating that audits for small startups
with no financials can cost $10,000 and that GAAP audits typically
cost 25-50% more than other comprehensive basis of accounting
audits); Stephenson Letter; Traklight Letter (stating that audit
costs have been cited as low as $5,000 and as high as $20,000 for a
startup; also stating that review costs are estimated at about 60%
of the cost of an audit); WealthForge Letter.
    \309\ See, e.g., CCA Letter (analyzing regulatory costs borne by
Title II issuers); CrowdFranchise Letter 1; CrowdFunding Network
(stating that projected costs are already decreasing through market
forces); D'Amore Letter; ddbmckennon Letter (noting that the
majority of issuers will be newly formed with limited historical
operations and that an audit for such companies may range from
$4,000-$9,000 in year one); Denlinger Letter 1 (citing a study that
found that about half of the cost of an audit is made up for in
interest rate savings on bank loans); Denlinger Letter 2 (the market
will evolve for small issuers such that audit costs may be in the
range of $2,000-$4,000); FundHub Letter 2 (noting the emergence of
CPA firms willing to do a complete audit for a startup business for
$2,500 or less); Holm Letter (stating that new providers are
offering compliance services at much lower costs than anticipated);
JumperCard Letter; Kemp Letter; Leverage PR Letter; Sfinarolakis
Letter; StartEngine Letter 1 (noting that reviews and audits will be
in the range of $1,500-$10,000 for smaller, newer companies);
StartEngine Letter 2 (noting the emergence of third-party service
providers); tempCFO Letter; Upchurch Letter (stating that the market
will adjust for costs).
---------------------------------------------------------------------------

    Basis of Accounting. Commenters generally were divided on whether
issuers relying on Section 4(a)(6) should be required to prepare
financial statements in accordance with U.S. GAAP.\310\ Commenters in
support of requiring U.S. GAAP noted the benefit to investors of having
a single standard to facilitate comparison of different issuers,\311\
and also that U.S. GAAP would be more likely to provide investors with
a fair representation of an issuer's financial position and results of
operations than financial statements using a comprehensive basis of
accounting other than U.S. GAAP.\312\
---------------------------------------------------------------------------

    \310\ For supporters, see, e.g., AICPA Letter (for offerings
over $100,000); CFA Institute Letter; EY Letter (for offerings over
$100,000 for only the most recent year); Hackers/Founders Letter;
Heritage Letter (recommending for issuers with assets over $100,000,
that if financial statements are not prepared in accordance with
U.S. GAAP, the issuer be required to note any variance from U.S.
GAAP and state the reason for such variance); NASAA Letter;
RocketHub Letter; Whitaker Chalk Letter (for offerings over $500,000
until such time as the Commission accepts IFRS for U.S. domestic
issuers).
    For opponents, see, e.g., ABA Letter (noting that the benefits
associated with GAAP-compliant financial statements do not outweigh
the burdens that mandatory application of GAAP would impose);
CrowdCheck Letter 4; EarlyShares Letter; Graves Letter (recommending
that U.S. GAAP only be required for issuers with $5 million in
revenue); Milken Institute Letter (recommending that U.S. GAAP only
be required for issuers with $5 million in revenue, the threshold at
which the IRS requires a switch to accrual accounting); Public
Startup Letter 2; SBEC Letter (noting the AICPA's release of new
guidelines in June 2013 for small and mid-size businesses); Tiny Cat
Letter; U.S. Chamber of Commerce Letter; Wilson Letter (recommending
that the Commission consider the stage of the business in
determining whether to require compliance with U.S. GAAP); Zhang
Letter.
    \311\ See, e.g., NASAA Letter.
    \312\ See, e.g., EY Letter.
---------------------------------------------------------------------------

    A number of commenters recommended that, as a less expensive
alternative to requiring U.S. GAAP, the Commission allow financial
statements prepared in accordance with a comprehensive basis of
accounting other than U.S. GAAP.\313\ Other commenters recommended that
if financial statements prepared in accordance with U.S. GAAP are
required, they only be required in certain circumstances.\314\
---------------------------------------------------------------------------

    \313\ See, e.g., ABA Letter (for offerings of $100,000 or less,
but stating that the Commission could require providing U.S. GAAP
financial statements if available); AICPA Letter; CFIRA Letter 5;
CFIRA Letter 7; CrowdCheck Letter 4; EarlyShares Letter; EY Letter
(for offerings of $100,000 or less, unless U.S. GAAP financial
statements are available); Grassi Letter; Graves Letter (for issuers
with less than $5 million in revenue); Mahurin Letter (stating that
simple Excel spreadsheets accompanied by bank records should meet
the financial statement requirements); Milken Institute Letter (for
early-stage issuers); NFIB Letter; SBEC Letter; StartupValley
Letter; Tiny Cat Letter (for offerings of less than $500,000);
Whitaker Chalk Letter (for offerings of less than $500,000 if the
issuer has an asset or income level below a certain level).
    \314\ See, e.g., ABA Letter (suggesting that: (i) In offerings
of $100,000 or less, the certifying principal executive officer
could be required to represent that the issuer is unable to prepare
financial statements in accordance with U.S. GAAP without
unreasonable effort or expense; (ii) in offerings of more than
$100,000, but not more than $500,000, the exception could also
require the principal executive officer representation and be
limited to issuers that have not prepared U.S. GAAP-compliant
financial statements for any other purpose and who have no operating
history, no revenues and/or a minimal amount of assets (e.g.,
$500,000); and (iii) in offerings of more than $500,000, the
exception could require the principal executive officer
representation, including a representation that the other
comprehensive basis of accounting methodology selected is acceptable
under AICPA standards, and be limited to issuers with no operating
history or revenue and minimal assets).
---------------------------------------------------------------------------

    A few commenters recommended that issuers relying on Section
4(a)(6) be permitted to take advantage of the extended transition
period applicable to private companies for complying with new or
revised accounting standards.\315\ A few commenters expressed concern
that Section 4(a)(6) issuers may be viewed as ``public business
entities'' by FASB.\316\ One commenter recommended that the Commission
provide an exemption from this definition for such issuers.\317\
---------------------------------------------------------------------------

    \315\ See, e.g., EY Letter; U.S. Chamber of Commerce Letter.
    \316\ See, e.g., ABA Letter; EY Letter (noting also the
definition of ``public entity'' under the Accounting Standards
Codification).
    \317\ See EY Letter.
---------------------------------------------------------------------------

    Periods Covered in the Financial Statements. While two commenters
generally supported requiring two years of financial statements,\318\ a
number of commenters generally opposed the proposal, recommending one
year of financial statements instead.\319\ Many commenters opposed
requiring interim financial statements,\320\ while several supported
such a requirement.\321\ Several commenters recommended that if interim
financial statements are required, they not be subject to audit or
review,\322\ while another commenter recommended that they not be filed
with the Commission, but only be provided to investors.\323\
---------------------------------------------------------------------------

    \318\ See ASSOB Letter; Zeman Letter.
    \319\ See, e.g., Denlinger Letter 1; EY Letter; Grassi Letter;
Joinvestor Letter; Public Startup Letter 2; RFPIA Letter (as it
relates to audited financial statements); RocketHub Letter; Verrill
Dana Letter.
    \320\ See, e.g., CFIRA Letter 7; EMKF Letter; EY Letter; FundHub
Letter 1; Grassi Letter; Public Startup Letter 2; RocketHub Letter;
Traklight Letter; Wefunder Letter; Whitaker Chalk Letter.
    \321\ See, e.g., AICPA Letter; Consumer Federation Letter
(recommending supplementing the proposed financial statement
requirements with unaudited CEO-certified financial statements
through the end of the month ending no more than two months before
the offering begins); Denlinger Letter 1 (recommending quarterly
basic financial reporting, including a balance sheet, income
statement and statement of cash flows); Fund Democracy Letter.
    \322\ See, e.g., CFIRA Letter 7; Consumer Federation Letter;
Denlinger Letter 1; Fund Democracy Letter; Traklight Letter.
    \323\ See, RocketHub Letter.
---------------------------------------------------------------------------

    Age of Financial Statements. Several commenters opposed our
proposal that financial statements be dated within 120 days of the
start of the offering,\324\ while one commenter supported it.\325\ Some
commenters opposed our proposal to permit an issuer, during the first
120 days of the issuer's fiscal year, to conduct an offering in
reliance on Section 4(a)(6) using financial statements for the fiscal
year prior to the

most recently completed fiscal year,\326\ while two others supported
such accommodation.\327\ One commenter recommended that, to provide
``truly current financials'' for large offerings, the Commission could
require unaudited financial statements through the end of the month
that ends no more than two months before the month in which the
offering begins (e.g., an offering any day in March would require
financials up to January 31); for smaller offerings, the commenter
indicated a modified standard for providing current information might
be appropriate.\328\
---------------------------------------------------------------------------

    \324\ See, e.g., Grassi Letter; Public Startup Letter 2;
RocketHub Letter.
    \325\ See Denlinger Letter 1.
    \326\ See, e.g., Consumer Federation Letter (stating that the
proposal allows for the provision of stale and limited financial
information because it ``would allow issuers to submit financial
statements that are more than a year out of date and that cover only
a very limited portion of the issuer's existence.''); EY Letter
(recommending this time period be extended to 180 days if an issuer
presents interim financial statements certified by the principal
executive officer that cover the first six months of the issuer's
most recently completed fiscal year); Fund Democracy Letter (noting
that financial statements could be 16-months stale); Merkley Letter
(recommending that the Commission not permit financial statements
``to be so thoroughly out of date''); Public Startup Letter 2.
    \327\ See, e.g., Grassi Letter (noting that the material change
disclosure requirements should be sufficient to keep investors
updated); RocketHub Letter.
    \328\ See Fund Democracy Letter.
---------------------------------------------------------------------------

    Public Accountant Requirements. We received several comments on
standards for audit firms.\329\ Commenters supported not requiring
audits to be conducted by a PCAOB-registered firm.\330\ Some commenters
supported our proposal to require the public accountant reviewing or
auditing an issuer's financial statements to comply with the
independence requirements set forth in Rule 2-01 of Regulation S-
X,\331\ while other commenters recommended allowing the public
accountant to comply by meeting the independence requirements of the
AICPA.\332\ Some commenters noted that many startups and early-stage
small businesses require assistance in the preparation of financial
statements, and that complying with the independence standards of
Regulation S-X would require such issuers to engage two external
accountants--one to assist in preparing the financial statements and
another to audit or review them.\333\ One commenter asked the
Commission not to create new independence standards.\334\
---------------------------------------------------------------------------

    \329\ See, e.g., Grassi Letter (recommending no audit be
accepted that has been performed by a firm that is not subject to,
or that has received a fail report under, the AICPA peer review
standards); ASSOB Letter (recommending the rules not place
restrictions on the type of accountant an issuer is required to use
to review or audit its financial statements); Multistate Tax Letter
(an issuer should not be required to obtain accounting services).
    \330\ See, e.g., AICPA Letter; ASSOB Letter (recommending the
rules not place restrictions on the type of accountant an issuer is
required to use to review or audit its financial statements);
Denlinger Letter 1; Funderbuddies Letter; EY Letter; Grassi Letter;
Heritage Letter; Multistate Tax Letter (an issuer should not be
required to obtain accounting services); Public Startup Letter 2;
RocketHub Letter; Traklight Letter. See also RFPIA Letter
(recommending the public accountants conducting an audit be required
to be members of the AICPA or the PCAOB for one year.).
    \331\ See, e.g., ABA Letter; Commonwealth of Massachusetts
Letter; RocketHub Letter.
    \332\ See, e.g., AICPA Letter; Denlinger Letter 1; EY Letter;
Grassi Letter; McGladrey Letter.
    \333\ See, e.g., AICPA Letter; EY Letter; Grassi Letter.
    \334\ See AICPA Letter (recommending that the Commission not
create new independence, review, or auditing standards or that the
definition of ``a complete set of financial statements'' be
different than under U.S. GAAP because doing so would result in
confusion, further complexity and increased costs).
---------------------------------------------------------------------------

    Review and Audit Standards. With respect to review standards,
commenters supported requiring reviewed financial statements to be
reviewed in accordance with the SSARS issued by the AICPA.\335\
Commenters also opposed creating a new set of review standards.\336\
---------------------------------------------------------------------------

    \335\ See, e.g., ABA Letter; AICPA Letter; Denlinger Letter 1;
EY Letter; Fund Democracy Letter; Grassi Letter. But see Public
Startup Letter 2.
    \336\ See, e.g., AICPA Letter; Denlinger Letter 1; Grassi
Letter; Traklight Letter.
---------------------------------------------------------------------------

    With respect to audit standards, several commenters supported our
proposal to require that financial statements be audited in accordance
with the auditing standards issued by either the AICPA or the
PCAOB,\337\ while several others opposed it.\338\ Two commenters
recommended that audits be required to be conducted in accordance with
the auditing standards issued by the PCAOB.\339\ Commenters generally
opposed creating a new set of audit standards,\340\ although one
commenter recommended that if the Commission were to create a new set
of audit standards, it ``should be designed as an ultra-low-cost
procedure.'' \341\
---------------------------------------------------------------------------

    \337\ See, e.g. AICPA Letter; Denlinger Letter 1; EY Letter;
Grassi Letter.
    \338\ See, e.g., Consumer Federation Letter; Fund Democracy
Letter; Public Startup Letter 2; RocketHub Letter; Rucker Letter
(stating that GAAS fit poorly with the kinds of businesses Title III
is intended to accommodate).
    \339\ See Consumer Federation Letter; Fund Democracy Letter.
    \340\ See, e.g., AICPA Letter; Grassi Letter (recommending that
the Commission require issuers to use the same standards used in the
offering or higher standards, with the PCAOB standards deemed to be
the higher standard, when complying with the ongoing reporting
requirements); Heritage Letter; Traklight Letter.
    \341\ RocketHub Letter.
---------------------------------------------------------------------------

    Review and Audit Reports. With respect to review reports, two
commenters supported our proposal that a review report that includes
modifications would satisfy the reviewed financial statement
requirement,\342\ while one commenter opposed it.\343\ With respect to
audit reports, commenters supported our proposal that a qualified audit
opinion would satisfy the audited financial statement
requirements,\344\ although one commenter opposed it.\345\ One
commenter requested clarification as to the requirements that may be
applicable to the issuer and the public accountant when an issuer
intends to include a previously issued audit or review report in an
offering statement.\346\
---------------------------------------------------------------------------

    \342\ See AICPA Letter; Heritage Letter (for going concern
opinions).
    \343\ See Grassi Letter.
    \344\ See, e.g., AICPA Letter; Arctic Island Letter 5 (noting
that most small business audit opinions are likely to include a
going concern clause); Denlinger Letter 1 (noting, however, that a
going concern opinion is not a qualified opinion); EY Letter;
Heritage Letter (noting that a majority of crowdfunding issuers
should receive going concern opinions but should not be
disqualified); RocketHub Letter; Traklight Letter (recommending that
going concern opinions and noncompliance with U.S. GAAP should be
allowed); Whitaker Chalk Letter.
    \345\ See Grassi Letter.
    \346\ See EY Letter.
---------------------------------------------------------------------------

    Exemptions from Financial Statement Requirements. While the
proposed rules did not exempt any issuers from the financial statement
requirements, a number of commenters recommended exempting issuers with
no operating history or issuers that have been in existence for fewer
than 12 months from the requirement to provide financial
statements,\347\ although a few commenters opposed such a concept.\348\
A number of commenters recommended that if an exemption for such
issuers is allowed, the exempted issuers should provide certain basic
disclosures,\349\ and two commenters specifically recommended that if
an exemption for such issuers is allowed, the exempted issuers should
still provide a balance sheet.\350\
---------------------------------------------------------------------------

    \347\ See, e.g., Arctic Island Letter 5 (supporting only an
exemption from the audit requirement); CFIRA Letter 5; CFIRA Letter
7; CrowdFundConnect Letter; Crowdpassage Letter 2; EY Letter; Grassi
Letter; Hackers/Founders Letter; Joinvestor Letter; McGladrey
Letter; PBA Letter; PeoplePowerFund Letter; RocketHub Letter
(recommending that the audit requirements should only apply to
issuers that have been in operation for more than two years and are
raising more than $5 million); StartupValley Letter (supporting an
exemption from the audit requirements); Wefunder Letter; Whitaker
Chalk Letter.
    \348\ See, e.g., AICPA Letter; Denlinger Letter 1; Wilson
Letter.
    \349\ See, e.g., ASSOB Letter; CFIRA Letter 5; Denlinger Letter
1; Grassi Letter; McGladrey Letter; PBA Letter; PeoplePowerFund
Letter; RocketHub Letter; Wefunder Letter; Whitaker Chalk Letter;
Zhang Letter.
    \350\ See EY Letter; PBA Letter.
---------------------------------------------------------------------------

(iii) Final Rules
    We are adopting financial disclosure requirements for Title III
issuers in Rule

201(t) with a number of changes from the proposal. As described in more
detail below, the final requirements are based on the amount offered
and sold in reliance on Section 4(a)(6) within the preceding 12-month
period, as follows:
     For issuers offering $100,000 or less: Disclosure of the
amount of total income, taxable income and total tax as reflected in
the issuer's federal income tax returns certified by the principal
executive officer to reflect accurately the information in the issuer's
federal income tax returns (in lieu of filing a copy of the tax
returns), and financial statements certified by the principal executive
officer to be true and complete in all material respects.\351\ If,
however, financial statements of the issuer are available that have
either been reviewed or audited by a public accountant that is
independent of the issuer, the issuer must provide those financial
statements instead and need not include the information reported on the
federal income tax returns or the certification of the principal
executive officer.
---------------------------------------------------------------------------

    \351\ See Rule 201(t)(1) of Regulation Crowdfunding.
---------------------------------------------------------------------------

     Issuers offering more than $100,000 but not more than
$500,000: Financial statements reviewed by a public accountant that is
independent of the issuer.\352\ If, however, financial statements of
the issuer are available that have been audited by a public accountant
that is independent of the issuer, the issuer must provide those
financial statements instead and need not include the reviewed
financial statements.
---------------------------------------------------------------------------

    \352\ See Rule 201(t)(2) of Regulation Crowdfunding.
---------------------------------------------------------------------------

     Issuers offering more than $500,000:
    [cir] For issuers offering more than $500,000 but not more than $1
million of securities in reliance on Regulation Crowdfunding for the
first time: Financial statements reviewed by a public accountant that
is independent of the issuer. If, however, financial statements of the
issuer are available that have been audited by a public accountant that
is independent of the issuer, the issuer must provide those financial
statements instead and need not include the reviewed financial
statements.
    [cir] For issuers that have previously sold securities in reliance
on Regulation Crowdfunding: Financial statements audited by a public
accountant that is independent of the issuer.\353\
---------------------------------------------------------------------------

    \353\ See Rule 201(t)(3) of Regulation Crowdfunding. See also
discussion below under ``Offerings of more than $500,000.''
---------------------------------------------------------------------------

    Content of Financial Statements. We are adopting substantially as
proposed the requirement that all issuers file with the Commission and
provide to investors and the relevant intermediary a complete set of
their financial statements, which includes balance sheets, statements
of comprehensive income, statements of cash flows, statements of
changes in stockholders' equity and notes to the financial
statements.\354\ In order to avoid potential confusion as to the
presentation of financial statements, and consistent with Tier 1
offerings under Regulation A,\355\ the final rule adds an instruction
that financial statements that are not audited must be labeled as
unaudited.\356\ Consistent with the proposal, the final rules do not
exempt any issuers from the financial statement requirements. Although
some commenters expressed concerns about the costs of the financial
statement requirements for issuers with no operating history or issuers
that have been in existence for fewer than 12 months,\357\ we believe
that financial statements are important information for investors and
that the changes from the proposed rules described below will help
reduce the costs associated with preparing financial statements for
many of those issuers.
---------------------------------------------------------------------------

    \354\ See Instruction 3 to paragraph (t) of Rule 201 of
Regulation Crowdfunding.
    \355\ See Paragraph (b) of Part F/S of Form 1-A.
    \356\ See Instruction 3 to paragraph (t) of Rule 201 of
Regulation Crowdfunding.
    \357\ See, e.g., Arctic Island Letter 5; CFIRA Letter 5; CFIRA
Letter 7; CrowdFundConnect Letter; Crowdpassage Letter 2; EY Letter;
Grassi Letter; Hackers/Founders Letter; Joinvestor Letter; McGladrey
Letter; PBA Letter; PeoplePowerFund Letter; RocketHub Letter;
StartupValley Letter; Wefunder Letter; Whitaker Chalk Letter. But
see AICPA Letter; Denlinger Letter 1; Wilson Letter.
---------------------------------------------------------------------------

    The final rule also includes an instruction to clarify that
references to the issuer in Rule 201(t) refer to the issuer and its
predecessors, if any.
    Offerings of $100,000 or less. Consistent with Securities Act
Section 4A(b)(1)(D)(i), we are adopting as proposed the requirement in
Rule 201(t)(1) that an issuer offering $100,000 or less provide
financial statements of the issuer that are certified by the principal
executive officer of the issuer to be true and complete in all material
respects.\358\ While we believe it will be beneficial for investors to
have an independent accountant review financial statements in offerings
over $100,000, we believe that for offerings of $100,000 or less this
certification is sufficient and will contribute to the integrity of the
issuer's financial reporting process. It will affirm for investors
that, although the financial statements have not been reviewed or
audited by an independent public accountant, there has been senior
executive attention paid to the financial statements. We are not
requiring this certification for reviewed or audited financial
statements, as some commenters suggested, because we believe the
certification is intended as an added measure of assurance that is not
needed in offerings of this size when an independent accountant reviews
or audits the financial statements. We also are adopting the form of
the certification that must be provided by the issuer's principal
executive officer as proposed with one change relating to the
information from the issuer's tax return.\359\
---------------------------------------------------------------------------

    \358\ See Rule 201(t)(1) of Regulation Crowdfunding.
    \359\ See Instruction 7 to paragraph (t) of Rule 201 of
Regulation Crowdfunding.
---------------------------------------------------------------------------

    Instead of mandating that issuers offering $100,000 or less provide
copies of their federal income tax returns as proposed, the final rules
require an issuer to disclose the amount of total income, taxable
income and total tax, or the equivalent line items from the applicable
form, exactly as reflected in its filed federal income tax returns, and
to have the principal executive officer certify that those amounts
reflect accurately the information in the issuer's federal income tax
returns.\360\ As noted by commenters,\361\ requiring that issuers
provide tax returns may present a significant risk of disclosure of
private information. While the proposed rule would require personally
identifiable information to be redacted, we are persuaded by commenters
that such a requirement might not provide an adequate safeguard against
inadvertent disclosure of this type of information in some instances.
The consequences for an issuer and an intermediary of such disclosure,
including the potential violation of applicable privacy laws, could be
severe. Specifying the information from the tax return that is required
without requiring submission of the tax return itself will provide
standardized disclosure for investors and help protect against the
accidental disclosure of personally identifiable or confidential
information. Requiring that these amounts be certified by the principal
executive officer will provide investors additional assurance of the
accuracy of those amounts in lieu of providing the underlying tax
returns.\362\ At the same

time, because the principal executive officer will be certifying only
that the amounts are as reported on the applicable income tax return,
we do not expect this requirement to impose any significant new burdens
on principal executive officers, who will already be certifying as to
the truth and completeness of the financial statements themselves. We
believe the alternative approach we are adopting provides a similar
benefit to investors as the proposal while addressing the privacy
concerns raised by commenters.
---------------------------------------------------------------------------

    \360\ See Rule 201(t)(1) of Regulation Crowdfunding.
    \361\ See, e.g., AICPA Letter; Public Startup Letter 2;
RocketHub Letter; SBM Letter; Wilson Letter; Zhang Letter.
    \362\ We note that any intentional misstatements or omissions of
facts may constitute federal criminal violations by the certifying
principal executive officer. See 18 U.S.C. 1001.
---------------------------------------------------------------------------

    As we stated in the Proposing Release, it remains unclear to us to
what extent all of the information presented in a tax return would be
useful for an investor evaluating whether to purchase securities from
the issuer. We believe, however, that certain information such as total
income, taxable income and total tax could be informative and would
likely be available to the issuer in tax documentation. The final
rules, therefore, provide that an issuer must disclose its total
income, taxable income and total tax, or the equivalent line items from
its federal income tax documentation and have the principal executive
officer certify that those amounts reflect accurately the information
in the issuer's federal income tax returns.\363\
---------------------------------------------------------------------------

    \363\ See Rule 201(t)(1) of Regulation Crowdfunding.
---------------------------------------------------------------------------

    Under the final rules, an issuer that offers securities in reliance
on Section 4(a)(6) before filing its tax return for the most recently
completed fiscal year will be allowed to use information from the tax
return filed for the prior year. An issuer that uses information from
the prior year's tax return will be required to provide tax return
information for the most recently completed fiscal year when filed with
the U.S. Internal Revenue Service (if the tax return is filed during
the offering period). An issuer that has requested an extension from
the U.S. Internal Revenue Service would not be required to provide the
information until the date when the return is filed, which is
consistent with the concept of not requiring tax information until that
information has been filed with the U.S. Internal Revenue Service. If
an issuer has not yet filed a tax return and is not required to file a
tax return before the end of the offering period, then the tax return
information does not need to be provided.\364\
---------------------------------------------------------------------------

    \364\ See Instruction 6 to paragraph (t) of Rule 201 of
Regulation Crowdfunding.
---------------------------------------------------------------------------

    We are adding to Rule 201(t)(1) a requirement that if financial
statements of the issuer are available that have either been reviewed
or audited by a public accountant that is independent of the issuer,
the issuer must provide those financial statements instead, and need
not include the information reported on the federal income tax returns
or the certification of the principal executive officer.\365\ This
approach was suggested by two commenters,\366\ and we believe it will
benefit investors by providing access to audited or reviewed financial
statements that were already prepared for other purposes. Unlike audit
reports in a registered offering,\367\ we are not requiring that review
or audit reports be accompanied by a formal consent or acknowledgment
letter. Rather, the final rules clarify that review and audit reports
must be signed and that the issuers must notify the public accountants
of their intended use in an offering in reliance on Section
4(a)(6).\368\
---------------------------------------------------------------------------

    \365\ See Rule 201(t)(1) of Regulation Crowdfunding.
    \366\ See Angel Letter 1; EY letter.
    \367\ See Securities Act Rule 436; Item 601 of Regulation S-K.
    \368\ See Instructions 8 and 9 to paragraph (t) of Rule 201 of
Regulation Crowdfunding.
---------------------------------------------------------------------------

    Offerings of more than $100,000 but not more than $500,000.
Consistent with Section 4A(b)(1)(D)(iii) and the proposed rules,
issuers must file and provide reviewed financial statements when
offering more than $100,000 but not more than $500,000.\369\ Similar to
the addition to Rule 201(t)(1) discussed above, we have added to Rule
201(t)(2) a requirement that if financial statements of the issuer are
available that have been audited by a public accountant that is
independent of the issuer, the issuer must provide those financial
statements instead.\370\ The approach of providing audited financial
statements that are otherwise available is consistent with what the
Commission adopted for issuers undertaking Tier 1 offerings under
Regulation A.\371\ We believe the benefits to investors of having
access to these audited financial statements justify any additional
burden imposed on issuers to provide these statements, which were
already prepared for other purposes.
---------------------------------------------------------------------------

    \369\ See Rule 201(t)(2) of Regulation Crowdfunding.
    \370\ Id.
    \371\ See Paragraph (b) of Part F/S of Form 1-A. While
Regulation Crowdfunding incorporates a number of requirements that
are consistent with Regulation A, it is important to note that
Regulation Crowdfunding and Regulation A are different exemptions
with distinct requirements. For example, unlike offerings under
Regulation Crowdfunding, Tier 1 offerings under Regulation A are
subject to state registration requirements and are required to be
``qualified'' by Commission staff.
---------------------------------------------------------------------------

    Offerings of more than $500,000. As proposed, Rule 201(t)(3)
provides that issuers offering more than $500,000 are required to
provide audited financial statements. In a change from the proposal,
the final rule includes an accommodation for issuers offering more than
$500,000 but not more than $1 million that have not previously sold
securities in reliance on Section 4(a)(6).\372\ Under Rule 201(t)(3),
those first-time issuers are permitted to provide reviewed rather than
audited financial statements, unless audited financial statements are
otherwise available.
---------------------------------------------------------------------------

    \372\ For purposes of determining whether an issuer has
previously sold securities in reliance on Section 4(a)(6),
``issuer'' includes all entities controlled by or under common
control with the issuer and any predecessors of the issuer. See Rule
100(c) of Regulation Crowdfunding.
---------------------------------------------------------------------------

    We are adding this accommodation for first-time issuers in response
to commenters' concerns about the expense of obtaining audited
financial statements. While some commenters expressed support for the
proposed audit requirement,\373\ many others noted that the proposed
audit requirement would be too costly and burdensome for issuers in
comparison to the size of the offering proceeds.\374\ A number of
commenters expressed particular concern that issuers would need to
incur the expense of an audit before having proceeds or even an
assurance of proceeds from the offering.\375\ After considering the
comments, we are persuaded that for issuers undertaking a first-time
crowdfunding offering of more than $500,000 but not more than $1
million, the benefits of requiring audited financial statements are not
likely to justify the costs. Accordingly, consistent with applicable
standards,\376\ for these first-time issuers, we are adopting instead a
requirement that those selling securities in reliance on Section
4(a)(6) in these circumstances

provide reviewed financial statements. Commenters stated that reviewed
financial statements would cost less than audited financial
statements,\377\ and one commenter noted that the cost of an accounting
review is approximately 60% of the cost of an audit.\378\
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    \373\ See, e.g., AICPA Letter; Consumer Federation Letter; CSTTC
Letter; Denlinger Letter 2; FundDemocracy Letter; Leverage PR; NASAA
Letter; StartEngine Letter 1.
    \374\ See, e.g., AEO Letter; Angel Letter 1; AWBC Letter; CFIRA
Letter 5; CfPA Letter; CrowdFundConnect Letter; EarlyShares Letter;
EMKF Letter; EY Letter; Finkelstein Letter; FundHub Letter 1;
Generation Enterprise Letter; Grassi Letter; Graves Letter; Guzik
Letter 1; Hakanson Letter; Holland Letter; Johnston Letter;
Kickstarter Coaching Letter; McGladrey Letter; Milken Institute
Letter; NACVA Letter; NFIB Letter; NPCM Letter; NSBA Letter; PBA
Letter; Reed Letter; RocketHub Letter; Saunders Letter; SBA Office
of Advocacy Letter; SBEC Letter; SBM Letter; Seyfarth Letter;
Verrill Dana Letter; WealthForge Letter; Wefunder Letter; Woods
Letter; Zeman Letter.
    \375\ See, e.g., AEO Letter; AWBC Letter; CFIRA Letter 5; CfPA
Letter; EMKF Letter; Generation Enterprise Letter; Grassi Letter;
Graves Letter; Holland Letter; McGladrey Letter; NSBA Letter; Reed
Letter; RocketHub Letter; SBM Letter; Seyfarth Letter; WealthForge
Letter; Wefunder Letter.
    \376\ See Securities Act Section 28 [15 U.S.C. 77z-3].
    \377\ See, e.g., Crowdcheck Letter 4; CfPA Letter (noting that
many offerings made in reliance on Rule 506 that involve companies
further along in their business development include reviewed but not
audited financial statements); Graves Letter (discussing the
``thorough'' nature of a CPA review and the cost differential
between reviewed and audited financial statements); NFIB Letter;
Traklight Letter.
    \378\ See Traklight Letter.
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    Basis of Accounting. We are adopting as proposed the requirement
that all issuers provide financial statements prepared in accordance
with U.S. GAAP.\379\ As discussed in the Proposing Release, financial
statements prepared in accordance with U.S. GAAP are generally self-
scaling to the size and complexity of the issuer, which we believe can
reduce the costs of preparing financial statements for many early stage
issuers. We would not expect that the required financial statements
would be long or complicated for issuers that are recently formed and
have limited operating histories. Although we acknowledge, as some
commenters observed, that other bases of accounting may be less
expensive than U.S. GAAP, we believe the benefit of a single standard
that will facilitate comparison among issuers relying on Section
4(a)(6) justifies any incremental expenses associated with U.S. GAAP.
In addition, we are concerned that it may be difficult for investors to
determine whether the issuer complied with another comprehensive basis
of accounting. For these reasons, we continue to believe that financial
statements prepared in accordance with U.S. GAAP will be the most
useful for investors in securities-based crowdfunding transactions,
particularly when presented along with the required description of the
issuer's financial condition.\380\
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    \379\ See Instruction 3 to paragraph (t) of Rule 201 of
Regulation Crowdfunding.
    \380\ See Rule 201(s) of Regulation Crowdfunding.
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    Additionally, as suggested by one commenter,\381\ in order to be
consistent with the treatment of emerging growth companies \382\ and
offerings relying on Regulation A,\383\ Rule 201(t) permits issuers,
where applicable, to delay the implementation of new accounting
standards to the extent such standards provide for delayed
implementation by non-public business entities.\384\ In this regard, if
the issuer chooses to take advantage of this extended transition
period, the issuer:
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    \381\ See EY Letter.
    \382\ See Securities Act of 1933 Section 7(a)(2)(B) [15 U.S.C.
77g(a)(2)(B)].
    \383\ See paragraph (a)(3) of Part F/S of Form 1-A.
    \384\ See Instruction 5 to paragraph (t) of Rule 201 of
Regulation Crowdfunding.
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     Must disclose such choice at the time the issuer files the
offering statement; and
     May not take advantage of the extended transition period
for some standards and not others, but must apply the same choice to
all standards.
    However, consistent with the treatment of emerging growth companies
and offerings relying on Regulation A,\385\ issuers electing not to use
this accommodation must forgo this accommodation for all financial
accounting standards and may not elect to rely on this accommodation in
any future filings.\386\
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    \385\ See paragraph (a)(3) of Part F/S of Form 1-A. See also
JOBS Act, Section 107(b)(1) and (3).
    \386\ See Instruction 5 to paragraph (t) of Rule 201 of
Regulation Crowdfunding.
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    On December 23, 2013, after we proposed rules for Regulation
Crowdfunding, the Financial Accounting Standards Board (FASB) and
Private Company Council (PCC) issued a guide for evaluating financial
accounting and reporting for non-public business entities.\387\ The PCC
was created in 2012 by the FASB and the Financial Accounting Foundation
to improve the standard-setting process, and provide for accounting and
reporting alternatives, for non-public business entities under U.S.
GAAP.\388\ As the standards for non-public business entities are new,
there are currently very few distinctions between U.S. GAAP for public
and non-public business entities. Over time, however, more distinctions
between non-public business entity and public company accounting
standards could develop.
---------------------------------------------------------------------------

    \387\ The Private Company Decision-Making Framework: A Guide for
Evaluating Financial Accounting and Reporting for Private Companies
(the ``PCC Guide''), available at: http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176163703583.
    \388\ For a brief history behind the creation of the PCC, see:
http://www.fasb.org/cs/ContentServer?c=Page&pagename=FASB%2FPage%2FSectionPage&cid=1351027243391.
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    Issuers that offer securities pursuant to Regulation Crowdfunding
will be considered ``public business entities'' as defined by the FASB
\389\ and, therefore, ineligible to rely on any alternative accounting
or reporting standards for non-public business entities.\390\ Even
though issuers of securities in a Regulation Crowdfunding offering fit
within the definition of ``public business entity,'' the Commission
retains the authority to determine whether or not such issuers would be
permitted to rely on the developing non-public business entity
standards.\391\ Commenters generally expressed concern about the costs
associated with requiring issuers relying on Section 4(a)(6) to follow
public company U.S. GAAP accounting standards.\392\
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    \389\ Criterion (a) of FASB's Accounting Standards Update 2013-
12, Definition of a Public Business Entity, states that an entity
that ``is required by the U.S. Securities and Exchange Commission
(SEC) to file or furnish financial statements, or does file or
furnish financial statements (including voluntary filers), with the
SEC (including other entities whose financial statements or
financial information are required to be or are included in a
filing)'' is a Public Business Entity.
    \390\ See numbered paragraph 12 of the PCC Guide, p. 3.
    \391\ Id.
    \392\ See, e.g., ABA Letter; CFIRA Letter 5; Grassi; EY Letter;
U.S. Chamber of Commerce Letter.
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    The final rules do not allow Regulation Crowdfunding issuers to use
the alternatives available to non-public business entities under U.S.
GAAP in the preparation of their financial statements. One of the
significant factors considered by the FASB in developing its definition
of ``public business entity'' was the number of primary users of the
financial statements and their access to management.\393\ As the FASB
noted, ``users of private company financial statements have continuous
access to management and the ability to obtain financial information
throughout the year.'' \394\ As the number of investors increases and
their ability individually to influence management decreases, it is
important that all investors receive or have timely access to
comprehensive financial information. As a result, although commenters
generally expressed concern about the costs associated with requiring
issuers relying on Section 4(a)(6) to follow public company U.S. GAAP
accounting standards,\395\ because crowdfunding investors will likely
not have the access to management that the FASB envisions, the
Commission believes that investor protection will be enhanced by
requiring Regulation Crowdfunding issuers to provide financial
statements prepared in the same manner as other entities meeting the
FASB's definition of ``public business entity.''
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    \393\ See PCC Guide, p. 6.
    \394\ Id.
    \395\ See, e.g., ABA Letter; CFIRA Letter 5; Grassi; EY Letter;
U.S. Chamber of Commerce Letter.
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    Periods Covered in the Financial Statements. We are adopting
substantially as proposed the requirement that financial statements
cover the shorter of the two most recently completed fiscal years or
the

period since the issuer's inception.\396\ While a number of commenters
recommended only one year of financial statements,\397\ we believe that
requiring a second year will provide investors with a basis for
comparison against the most recently completed period, without
substantially increasing the costs for the issuer.
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    \396\ See Instruction 3 to paragraph (t) of Rule 201 of
Regulation Crowdfunding.
    \397\ See, e.g., Denlinger Letter 1; EY Letter; Fryer Letter;
Grassi Letter; Joinvestor Letter; Public Startup Letter 2; RFPIA
Letter; RocketHub Letter. But see, e.g., ASSOB Letter; Zeman Letter.
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    In addition, consistent with the proposal and with the views of
many commenters,\398\ the final rules do not require interim financial
statements. While we recognize the needs of investors for current
financial information, we are also cognizant of the anticipated costs
of obtaining interim financial statements. We believe that the required
discussion of any material changes or trends known to management in the
financial condition and results of operations of the issuer since the
period for which financial statements are provided will help provide
investors with the necessary information.\399\
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    \398\ See, e.g., CFIRA Letter 7; EMKF Letter; EY Letter; FundHub
Letter 1; Grassi Letter; Public Startup Letter 2; RocketHub Letter;
Traklight Letter; Wefunder Letter; Whitaker Chalk Letter.
    \399\ See Instruction 1 to paragraph (s) of Rule 201 of
Regulation Crowdfunding.
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    Age of Financial Statements. We are adopting substantially as
proposed rules providing that during the first 120 days of the issuer's
fiscal year, an issuer may conduct an offering in reliance on Section
4(a)(6) using financial statements for the fiscal year prior to the
most recently completed fiscal year if the financial statements for the
most recently completed fiscal year are not otherwise available.\400\
For example, if an issuer that has a calendar fiscal year end conducts
an offering in April 2016, it would be permitted to include financial
statements for the fiscal year ended December 31, 2014 if the financial
statements for the fiscal year ended December 31, 2015 are not yet
available. Once more than 120 days have passed since the end of the
issuer's most recently completed fiscal year, the issuer would be
required to include financial statements for its most recently
completed fiscal year.\401\ Regardless of the age of the financial
statements, an issuer would be required to include in the narrative
discussion of its financial condition a discussion of any material
changes or trends known to management in the financial condition and
results of operations of the issuer during any time period subsequent
to the period for which financial statements are provided to inform
investors of more recent developments.\402\
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    \400\ See Instruction 4 to paragraph (t) of Rule 201 of
Regulation Crowdfunding. The final rule incorporates instructions
consistent with other SEC rules explaining that if the 120th day
falls on a Saturday, Sunday, or holiday, the next business day shall
be considered the 120th day.
    \401\ Id.
    \402\ See Rule 201(s) of Regulation Crowdfunding and Instruction
1 to paragraph (s) of Rule 201.
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    While some commenters expressed concern that this accommodation
would not provide investors with sufficiently current financial
information,\403\ we believe that this risk will be mitigated by the
requirement that the issuer include a narrative discussion of any
material changes or trends known to management in the financial
condition and results of operations during any time period subsequent
to the period for which financial statements are provided.\404\
Further, we believe this accommodation is needed because otherwise
issuers would not be able to conduct offerings for a period of time
between the end of their fiscal year and the date when the financial
statements for that period are available.
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    \403\ See, e.g., Consumer Federation Letter; Fund Democracy
Letter; Merkley Letter.
    \404\ See Rule 201(s) of Regulation Crowdfunding and instruction
1 to paragraph(s) of Rule 201.
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    We are not adopting the alternative proposed by one commenter to
require unaudited financial statements through the end of the month
that ends no more than two months before the month in which the
offering began.\405\ Such a requirement would require an issuer to
prepare a set of financial statements at a time when it would not
otherwise be doing so and would be a more onerous requirement than
applies to registered or Regulation A offerings.\406\
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    \405\ See Fund Democracy Letter.
    \406\ See Rule 3-12(a) of Regulation S-X [17 CFR 210.3-12(a)]
(requires that the latest balance sheet be as of a date no more than
134 days for non-accelerated filers (or 129 days for accelerated and
large accelerated filers) before the effective date of a
registration statement (or date a proxy statement is mailed));
Paragraph (b) of Part F/S of Form 1-A (Tier 1 and Tier 2 issuers are
required to include financial statements in Form 1-A that are dated
not more than nine months before the date of non-public submission,
filing, or qualification, with the most recent annual or interim
balance sheet not older than nine months).
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    Public Accountant Requirements. In a change from proposed Rule
201(t), in response to commenters' suggestions, the final rules provide
that to qualify as independent of the issuer, a public accountant would
be required to either: (1) Comply with the Commission's independence
rules, which are set forth in Rule 2-01 of Regulation S-X,\407\ or (2)
comply with the independence standards of the AICPA.\408\ Allowing the
AICPA independence standards as an alternative to the Commission's
independence standards is consistent with the recommendations of a
number of commenters \409\ and the treatment of Tier 1 issuers under
Regulation A.\410\ We believe that providing issuers with this
flexibility is appropriate in light of the potential costs to issuers
that would otherwise be required to engage an accountant who was
independent under Rule 2-01 of Regulation S-X.
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    \407\ 17 CFR 210.2-01.
    \408\ See Instruction 9 to paragraph (t) of Rule 201 of
Regulation Crowdfunding.
    \409\ See, e.g., AICPA Letter; Denlinger Letter 1; EY Letter;
Grassi Letter; McGladrey Letter.
    \410\ See Paragraph (b)(2) of Part F/S of Form 1-A. See also,
supra, note 371.
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    Consistent with the recommendation of one commenter,\411\ in
addition to meeting the independence standards of Rule 2-01 of
Regulation S-X or the AICPA, we are requiring that a public accountant
that audits or reviews the financial statements provided by an issuer
must meet the standards for public accountants of Rule 2-01(a) of
Regulation S-X. The Commission will not recognize as a public
accountant any person who: (1) Is not duly registered and in good
standing as a certified public accountant under the laws of the place
of his residence or principal office; or (2) is not in good standing
and entitled to practice as a public accountant under the laws of the
place of his residence or principal office.\412\ We believe these
standards will promote the use of qualified accountants that are in
compliance with the requirements for their profession for the review or
audit of the financial statements with respect to all offerings,
including offerings in reliance on Section 4(a)(6).
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    \411\ See AICPA Letter.
    \412\ See 17 CFR 210.2-01(a).