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Are that kind of practices legal under US GAAP, or any accounting regime? Or are there just no accountants on board? (Got around the paywall: C-level execs are

by wjnc 11y ago

Are that kind of practices legal under US GAAP, or any accounting regime? Or are there just no accountants on board? (Got around the paywall: C-level execs are taking huge compliance risks by giving unauditable statements before and during flotation.) With regards to a quote in the link: "Our purpose here isn’t to make money. Our purpose is to acquire and serve customers. Making money is the logical consequence of doing our jobs well, but it isn’t our purpose." I am baffled. Think about what stakeholders you can service if making money is a (possible) consequence of doing your job well, but not your purpose. In my Peter Drucker-inspired econoverse, that's a pretty short lifespan you've got ahead of you. One day or another, that bottom line catches up with you.

Brushfire 11y ago
Private companies do not have to follow or care about GAAP. They should, but there is no "legality" here.
- wjnc 11y ago
  Thanks, you're right. Did not know that US GAAP is adopted by the SEC. I'm more familiar with IFRS and Dutch GAAP which (at least partly) matter for any corporation that is registered in the Netherlands.
bsbechtel 11y ago
>>Are that kind of practices legal under US GAAP, or any accounting regime? Or are there just no accountants on board? Regardless of the legality, responsibility should ultimately fall on the shoulders of the investor to require financial reporting be done in a way that is acceptable to that investor, before they hand over money to the company. This may not be as true in publicly traded companies, where many amateur investors are participating in the market. The same goes for angel investing, if only because many companies at that stage may be pre-revenue or even pre-product. However, at the VC level, millions of dollars are invested to scale supposedly sound businesses. VCs should be sophisticated enough to manage this risk, and if I were an LP looking to put my money in a VC fund, I would be very concerned about putting my money in a fund that didn't have some sort of required standard financial reporting practices for all portfolio companies.

by wjnc 11y ago

Brushfire 11y ago

Private companies do not have to follow or care about GAAP. They should, but there is no "legality" here.

wjnc 11y ago
Thanks, you're right. Did not know that US GAAP is adopted by the SEC. I'm more familiar with IFRS and Dutch GAAP which (at least partly) matter for any corporation that is registered in the Netherlands.

bsbechtel 11y ago

>>Are that kind of practices legal under US GAAP, or any accounting regime? Or are there just no accountants on board? Regardless of the legality, responsibility should ultimately fall on the shoulders of the investor to require financial reporting be done in a way that is acceptable to that investor, before they hand over money to the company. This may not be as true in publicly traded companies, where many amateur investors are participating in the market. The same goes for angel investing, if only because many companies at that stage may be pre-revenue or even pre-product. However, at the VC level, millions of dollars are invested to scale supposedly sound businesses. VCs should be sophisticated enough to manage this risk, and if I were an LP looking to put my money in a VC fund, I would be very concerned about putting my money in a fund that didn't have some sort of required standard financial reporting practices for all portfolio companies.