Ed Schenkein, CPA
Partner at SingerLewak, LLP
I was honored to be invited to speak on a panel at the Planet MicroCap conference in Las Vegas on April 25th. The conference was attended by MicroCap companies in a diverse array of industries, domestic and international. The topic of the panel was “MicroCap Accounting: Best Practices”. The 3-day event brought together companies, dealmakers, advisors and investors.
I was joined by other prominent CPA firms to address best accounting practices and several hot topics including: Chinese listings; block chain, crypto currencies and initial coin offerings for public companies. I thought you might find of interest some highlights from my discussion points:
Transparency – The topic of transparency and what it means to a SEC registrant sparked interest amongst the audience. Of special interest was the Management Discussion and Analysis (“MD&A”) in the public filings. As a result, I thought I would share the following key points regarding MD&A and transparency:
• MD&A should not consist of generic or boilerplate disclosure. Rather, it should reflect the facts and circumstances specific to an individual registrant. It is the opportunity for the Company to tell its story. In general, registrants should ensure those disclosures provide investors with the ability to see the company through the "eyes of management."
• The disclosures should also reflect, in a timely manner, the actual economic results and trends in operations and liquidity of the business, including, but not limited to, the industry and environment in which it operates.
Non-GAAP Measures – Another topic we addressed was the inclusion of amounts in the filings with the SEC, which are not in accordance with generally accepted accounting principles (“GAAP”). In recent years, there has been a resurgence of concern about the misuse of financial measures and key performance indicators, which are not based on GAAP. These indicators are commonly referred to as “Non-GAAP measures.” It is pertinent that Audit Committees, Boards, and Management examine such disclosures with an eye toward ensuring the differences between GAAP and Non-GAAP are clearly explained. Additionally, it should be made clear how the non-GAAP measures were determined and why they are important to include in public filings.
Being Proactive, Prepared, Nimble, Informed – We also addressed the impact of the industry disruptors to companies. Management and Boards face increasing competition, rapid changes in their industries (disruption) and, as a result, companies can benefit by learning from each other to propel the business forward. The following are some key questions that entities should consider in their strategic planning process:
• Are technology, processes and markets continually examined?
• What are alternative strategies for the Company’s products and/or services?
• What resources are needed?
• How quickly can the Company gather information, analyze, discuss, plan and implement?
Communications with Key Advisors and Stakeholders – Consistent with transparency, is the need to communicate clearly, timely and completely with advisors and stakeholders such as board and audit committee, shareholders, auditors and other key influencers. When communicating key information, the following are examples of questions which should be considered:
• What is appropriate to communicate internally and externally?
• What are the SEC filing requirements?
• Has the Company developed the resources, action steps and messaging to support news or industry events that positively or negatively impact its operations, financials, etc.?
Corporate Governance- Corporate governance is critical to the success of a company. As a result, when building the corporate governance structure for an entity, here are some examples of questions to consider:
• What are the qualifications?
• What is the make-up of the current board?
• Does the current board need to be re-evaluated?
• Are all board members adding value and engaged?
• What are the skills, contacts, experience and influence desired from individual members?
• How effective is the board, nominating committee, and management in fulfilling governance and strategic needs?
In summary, Accounting Best Practices are comprised of multiple factors and implemented by executives beyond the accounting team. It is critical that corporate governance is strong and involved to ensure transparency, reliability, and effective communication to the stakeholders in the public filings. I recommend each of these areas be evaluated in depth on at least a yearly basis.