JOBS Act Will Increase Likelihood Of Accounting Scandals, Majority Of Bankers Say

Bankers: New Law Will Increase Likelihood of Accounting Scandals

By Olivia Oran

July 10 (Reuters) - A majority of bankers believe the U.S. Jobs Act may open the door to accounting scandals by loosening regulation on smaller companies, a survey found.

About 55 percent of capital markets professionals surveyed at investment banks think the rollback in regulations increases the risk of scandals, but around the same percentage also think the law will spur more initial public offerings, according to the study by accounting and consulting firm BDO USA LLP.

The Jobs Act, which President Obama signed into law in April, affects companies that generate less than $1 billion in annual revenue. Proponents for the act have said it will help companies raise capital to grow, while critics have said it loosens protections designed to protect investors.

Some aspects of the Jobs Act, such as the ability of analysts to publish research on IPOs that are being marketed by their investment banking counterparts, were overwhelmingly supported by bankers, with 80 percent in favor.

However, they were split on the impact of a rule that allows companies to file their drafts of their registration statements confidentially with the U.S. Securities and Exchange Commission.

Potential problems with this provision came to light earlier after daily deals company Groupon Inc had public disagreements with the SEC over accounting issues. Some say that if Groupon qualified under the Jobs Act, potential investors would not have discovered these problems until after the company's IPO.

"By slackening a little on the regulatory reporting requirements of these IPO companies, the possibility of fraud, manipulation and inappropriate reporting is increased," said Brian Eccleston, a partner in the capital markets practice of BDO USA. "It's a judgment call on how much this has increased, and it's a tradeoff."

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