CPA accredited investor verification is a process in which a certified public accountant reviews appropriate information or documentation and provides confirmation concerning an investor's accredited investor status, when the CPA is acting within the applicable professional and regulatory framework.
CPA-backed verification may be useful when an investor is participating in a private offering and the issuer requests third-party verification. The appropriate process depends on the offering, applicable Regulation D exemption, investor qualification category, and issuer requirements.
What Is CPA Accredited Investor Verification?
CPA accredited investor verification involves review by a qualified CPA of information relevant to an investor's claimed accredited investor status.
For example, an investor may qualify based on income or net worth. Depending on the verification method, relevant documentation can include tax forms, W-2s, bank statements, brokerage statements, and information about liabilities.
A CPA's role is not simply to sign a letter. For the Rule 506(c) third-party confirmation method, the SEC describes written confirmation from a certified public accountant who has taken reasonable steps to verify the purchaser's accredited investor status and determined that the purchaser is an accredited investor.
Is CPA Accredited Investor Verification Required?
No. CPA verification is not universally required for every accredited investor or private investment.
The applicable requirement depends on the offering and the Regulation D exemption being used. Under Rule 506(c), an issuer must take reasonable steps to verify that purchasers are accredited investors. The SEC provides a principles-based approach and a non-exclusive list of verification methods. A CPA confirmation is one potential method; it is not the only method.
An issuer may nevertheless request CPA-backed verification as part of its investor onboarding process. Investors should follow the specific requirements provided by the issuer or offering platform.
What Does a CPA Review?
The information reviewed depends on how you qualify and which verification method is being used.
Income-Based Qualification
Potential documentation may include:
- W-2s
- 1099s
- Tax returns
- Other appropriate income documentation
The SEC's Rule 506(c) verification framework includes reviewing IRS forms that report income as one non-exclusive verification approach.
Net-Worth Qualification
Potential documentation may include:
- Bank statements
- Brokerage or securities statements
- Certificates of deposit
- Tax assessments
- Other appropriate asset documentation
- Information concerning liabilities
Net worth is generally calculated as assets minus liabilities. For the individual net-worth test, the value of the investor's primary residence is excluded as an asset. Certain debt secured by the primary residence is treated under specific SEC rules, including special treatment for debt incurred during the 60 days preceding the securities purchase.
You may not need every document listed above. The appropriate documentation depends on your qualification category and verification method.
Can a CPA Verify Accredited Investor Status?
Yes, a CPA can provide written confirmation as part of a Rule 506(c) verification method when the applicable SEC requirements are satisfied.
The SEC's non-exclusive verification methods include written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant. For this method, the professional must state that, within the preceding three months, they took reasonable steps to verify the purchaser's accredited investor status and determined that the purchaser is an accredited investor.
A CPA signature alone does not automatically satisfy every verification requirement. The applicable facts, documentation, professional review, and issuer requirements matter.
How Does CPA Accredited Investor Verification Work?
The typical process is straightforward:
Step 1 — Start Verification
Provide the basic information requested by the verification provider.
Step 2 — Upload Supporting Documentation
Securely provide the documentation relevant to your qualification category and verification method.
Step 3 — CPA Review
The applicable information and documentation are reviewed by the CPA within the verification process.
Step 4 — Receive the Verification Documentation
If the requirements are satisfied, the applicable CPA-backed verification documentation is provided to you.
Step 5 — Provide It to the Issuer
Submit the verification documentation according to the issuer's instructions.
Verification does not guarantee acceptance into an offering, investment approval, or closing. The issuer remains responsible for its applicable investor-verification process.
CPA Verification vs. Other Accredited Investor Verification Methods
CPA-backed verification: Written confirmation from a certified public accountant when the applicable verification requirements are satisfied.
Document-based verification: An issuer may review specified financial documentation under an applicable verification method.
Other qualified professionals: The SEC framework also recognizes written confirmation from certain registered broker-dealers, SEC-registered investment advisers, and licensed attorneys.
Investor self-statement: A simple statement or checkbox by itself does not automatically satisfy every applicable verification requirement. The SEC specifically notes that self-certification alone is not sufficient for the Rule 506(c) reasonable-steps-to-verify requirement.
No single method is universally required for every offering.
What Documents Should I Prepare?
Before starting, consider preparing:
- Information showing which accredited-investor qualification category applies
- Relevant income documentation, if using an income-based qualification
- Asset documentation, if using a net-worth qualification
- Information about liabilities when required for a net-worth calculation
- Complete, legible copies of requested documents
- Any additional information requested by the verification provider or issuer
You may not need every document listed. The appropriate documentation depends on your qualification category and the verification method being used.
CPA Accredited Investor Verification for Rule 506(c)
Rule 506(c) requires an issuer to take reasonable steps to verify that purchasers are accredited investors. The SEC describes both a principles-based approach and a non-exclusive list of verification methods.
One listed method permits written confirmation from a certified public accountant who has taken reasonable steps to verify the purchaser's status within the preceding three months and determined that the purchaser is accredited.
Importantly, the SEC's verification methods are non-exclusive and non-mandatory. An issuer does not have to use the CPA method specifically, provided its verification approach satisfies the applicable requirements.
For Rule 506(b), the issuer generally must have a reasonable belief that an investor is accredited, but Rule 506(b) does not impose the same Rule 506(c) reasonable-steps-to-verify requirement. Rule 506(b) should not be treated as having the same Rule 506(c) verification requirement.
Common CPA Verification Mistakes
Avoid these common mistakes:
- Assuming CPA verification is always legally required
- Assuming a CPA signature automatically satisfies every verification requirement
- Uploading incomplete or illegible documentation
- Confusing a CPA letter with verification in every possible offering
- Assuming one document proves accredited status in every circumstance
- Ignoring the issuer's specific requirements
- Waiting until an investment deadline to begin verification
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If an issuer has asked you for CPA-backed accredited investor verification, you may not need to pay a separate verification fee.
VerifyAccredited provides free/no-cost CPA-backed accredited investor verification for investors, with secure document upload and a fast 48-hour verification target when the required information and documentation are complete.
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Get Free CPA-Backed Accredited Investor VerificationFrequently Asked Questions
What is CPA accredited investor verification?
CPA accredited investor verification is a CPA-backed review and confirmation of an investor's accredited investor status when the applicable verification requirements are satisfied. The exact process depends on the offering, qualification category, verification method, and issuer requirements.
Is CPA accredited investor verification required?
No. CPA verification is not universally required. For Rule 506(c), issuers must take reasonable steps to verify accredited investor status, but the SEC provides multiple non-exclusive verification approaches.
Can a CPA verify accredited investor status?
Yes. A CPA can provide written confirmation under the applicable Rule 506(c) third-party confirmation method when the SEC's requirements for that method are satisfied.
What documents does a CPA need for accredited investor verification?
The documents depend on the qualification category and verification method. They may include income records such as W-2s or tax forms, or financial documentation such as bank and brokerage statements for a net-worth-based verification.
How does CPA accredited investor verification work?
Generally, an investor provides relevant information and documentation, the CPA reviews it, and the investor receives the applicable verification documentation if the requirements are satisfied. The documentation can then be provided to the issuer according to its requirements.
Is CPA verification valid for Rule 506(c)?
It can be. The SEC expressly includes written confirmation from a certified public accountant among its non-exclusive Rule 506(c) verification methods, provided the applicable requirements are satisfied.
How long does CPA accredited investor verification take?
VerifyAccredited targets completion within 48 hours when the required information and documentation are complete. Actual processing time can vary depending on the submission and review requirements.
Is CPA accredited investor verification free?
VerifyAccredited offers CPA-backed accredited investor verification at no cost to investors. The service states that it covers the CPA review cost for investors using its verification process.
Final Takeaway
CPA accredited investor verification can provide investors with documented, professional support for an issuer's accredited-investor verification process. It is not universally required, and a CPA letter does not automatically satisfy every offering's requirements.
If you have been asked for CPA-backed verification, understand the issuer's requirements, prepare the appropriate documentation, and use a verification process that matches the applicable offering.
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- SEC Accredited Investor Definition https://www.sec.gov/resources-small-businesses/capital-raising-building-blocks/accredited-investor
- SEC Rule 506(c) Adopting Release https://www.sec.gov/rules/final/2013/33-9415.pdf
- SEC Investor Bulletin: Accredited Investors https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/accredited-investor-bulletin
Disclaimer: This article is provided for informational purposes only and does not constitute legal, tax, accounting, investment, or regulatory advice. Investors should consult qualified professionals regarding their specific circumstances and eligibility requirements.