Moving to Audited Financials? Four Tips to Prepare Your Equity Accounting and Reporting for Success

Posted on May 14, 2012 by Jeremy Wright

Audited FinancialsFor most privately-held companies, a major growth milestone (and admitted headache) is the point in time when their compiled financials are transitioned to audited financials. And while this may sometimes to be more of a pain than not, what it does signify is your path toward outside investment, revenue and growth.

However, what the transition to audited financials also means is that ownership information, all the way back to the first day of the company’s history, must also be in an auditable state to pass review.

But where can you even get started? Luckily, we’ve got a few tips for you to successfully prepare your equity information for success, including:

  1. Get Your Internal and External Team Organized
    If you’re like most privately-held, venture-backed companies, your equity administration responsibilities fall within several different functions of your organization, including:

    • Outside Counsel, who creates stock types and stock option plan paperwork
    • Human Resources, who provides updated contact and employee information
    • Payroll, who handles taxation issues
    • Controller, who reconciles equity transactions for accounting and financials
    • CFO or In-House Counsel, who is responsible for board minutes and circulating relevant portions of equity reporting to the parties who implement equity decisions.

    Needless to say, that’s a lot of touchpoints. Your best course of action when making the move to audited financials is to organize your team early on to understand exactly who touches your equity information, as well as what their primary responsibility is with that information. Institute a standard process for tracking, reporting and sharing information, both among your internal team, as well as with your audit team, to ensure a seamless flow of accurate and appropriate reports.

  1. Collect a Complete Historical Record of Your Equity Records and Plans
    Your next step will be to collect all of your documentation, articles and amendments to understand the structure of your equity and how it has changed over time. Be sure to include at least a few representative grant agreements so that you understand the terms of your plan and the structure under which the grants were made.Not only will you need to describe the historical overview of your equity plan, but you will also need to collect all of the historical documents, dates and information regarding each grant. For example, if a grant was cancelled, you should include the date that the grant was cancelled, as well as the reason it was cancelled to properly track forfeitures and expirations. If a grant was exercised at any point in time, you’ll need the documentation necessary to demonstrate when it was exercised and the resulting certificate number.
  1. Consider Automation as an Alternative to Spreadsheets
    Excel was never built to sufficiently handle the complex equity accounting and reporting requirements of privately-held companies today. While there is always a place for Excel and spreadsheets in finance, unfortunately, the real-time, accurate data calculations and reporting that ASC Topic 718 requires (and your auditors will demand of you) means that you’ll need to find a way to centralize and automate your option expensing to better track, report and share your information. In the end, you will generate better results in less time and at a lower cost.

    When you implement an automated system, don’t be surprised if your previously reported expense from your spreadsheets does not completely match the output from a new system. There are slight variations in how each system and for that matter each separate CFO’s spreadsheet amortizes the equity compensation expense from period to period. Even if your spreadsheet is 100% correct with its information, your method will probably differ from the system you now use. Typically, this difference is immaterial and a line item in your first reporting period after initial implementation is all that is necessary.

  2. Start Early and Review Often
    The best advice we can offer is to start getting yourself organized early on in the process. Don’t wait until your plan has hundreds of participants, as you will be setting yourself up for a mild disaster down the road. If you are organized in an automated system from the start, your path toward audited financials will be that much easier. You should also plan to review your records on a monthly basis as a best practice, even if you aren’t doing grants. This way, you can avoid any surprises that might catch your audit team off-guard.

Are you a CFO or finance executive that’s made the transition from compiled to audited financial reporting? If so, we invite you to offer any advice, best practices or tips to add to the suggestions listed above.

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New JOBS Act Calls for Better Equity Tracking

Posted on May 7, 2012 by Gary D. Levine

JOBS Act Calls for Better Equity TrackingWhether you’re an investor in start-ups, a board member, a founder, a CFO, or an attorney, you’ve probably noticed that the ownership records and capitalization tables for fast-growing start-ups seem to be a little disorganized (don’t worry – others have noticed it, too).

But now Congress has passed a new piece of legislation designed to help start-ups raise capital faster and with less paperwork. What do you think this might do for all those disorganized capitalization tables?

For privately held companies, the new Jumpstart Our Business Startups (JOBS) Act has:

  • Authorized “crowdfunding” for the purpose of raising up to $1 million per year;
  • Removed the ban on general solicitations for Reg D offerings to accredited investors; and
  • Increased the number of shareholders from 500 to 2,000 before a company has to register with the SEC.

Basically, each of those provisions would mean that every start-up could have many more stockholders in less time and earlier in their life-cycle.  This is clearly great news for start-ups who need to raise capital to build their products or grow their businesses. However, from a purely administrative perspective, it might mean their capitalization tables and ownership records are going to become more chaotic – which inevitably leads to higher legal and accounting fees and even more problems in the next round of due diligence.

While entrepreneurs are taking the newfound money and building something amazing as a result of this new legislation, to someone else it means more holders of the company’s common and preferred stock, more transfers, more people asking questions about their ownership interests, and more people voting at the stockholders’ meetings.

But it doesn’t have to be that way. In fact, you can “have your cake and eat it too.”  Before you get disorganized and as soon as you sell your equity to outside investors – big ones, small ones, family, friends, “crowds” – take a moment and put your equity records into an equity management system. That way, all your reports and capitalization tables are completely accurate from the beginning, and you don’t need to waste any time down the road.  All you need to do, at a minimum, is enter five basic pieces of information correctly, and let the system do the rest:

  1. Stockholder Name
  2. Number of Shares
  3. Date Issued
  4. Class of Stock
  5. Stock Certificate Number

You can do it.  Focus all your time on raising the capital and let an equity management and reporting system handle the legwork.  You owe it to yourself to grow your business.  You owe it to your investors to spend all your time on your start-up.  In the same token, you need to know who owns the company. Every share. Every percent. It must be 100% accurate. And it’s better to get it right now than try to figure it out when you’re ready for your next round of financing.

Let us know if Corporate Focus can help as you grow your business – just like it helps thousands of other start-ups who depend on it. If you start off on the right foot today – it all gets easier from here. Trust us.

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5 Ways Excel Fails at ASC Topic 718 (FAS 123R) Reporting

Posted on April 23, 2012 by Gary D. Levine

Spreadsheets fail at ASC Topic 718 (FAS 123R) reportingRecently, we attended a CFO RoundTable panel on Revenue Recognition Under Evolving FASB Standards, which reviewed new privately-held company accounting standards currently in consideration for adoption in the next 3 years. While there were several key takeaways for CFOs to consider, one message rang clear – to successfully handle these new and complex accounting standards, CFOs must change the way they manage and report their financial information.

In fact, Jim McGeever, COO of NetSuite and a speaker on the Revenue Recognition panel put it best: “Spreadsheets in general are no longer an option. The complexity of the proposed [accounting] standard and the coordination it will involve with all of your teams, including sales, finance, support and more, will push the boundaries of spreadsheets. Now is the time to consider an automated, centralized process with which to share, track and report on your financials.”

First, we couldn’t have said that any better ourselves.  Second, we fully recognize that corporate accounting on all levels, from multi-element revenue arrangements down to equity reporting and accounting under ASC Topic 718 (formerly FAS 123R), has changed dramatically over the past few years. And while these accounting changes have greatly improved the transparency and accuracy of financial reporting of privately-held companies, it’s also surpassed the capabilities of what CFOs can manage with spreadsheets alone.

Take, for example, equity reporting under ASC Topic 718 using Excel. While Excel can certainly handle the ownership tracking of a few records, under the current equity accounting standard, its capabilities fall short of acceptable.  As examples of this:

  1. It Can’t Easily and Accurately Track Records
    Whether it’s 25 records or 250, the amount of manual work that you must conduct to track your ownership records is enormous when laboring with Excel. And let’s not even mention the tracking of any custom vesting schedules. Do you know how many shares vest daily or at the end of any period?
  2. It Can’t Efficiently Calculate Inputs to Generate Fair Value
    When valuing option grants using the Black-Scholes method (or any other method for that matter), not only is the formula itself complicated, but the inputs that are needed to correctly calculate fair value using Black-Scholes are in themselves complicated. For example, to correctly use Black-Scholes, you must first calculate your expected term.  Then, using that expected term, calculate the volatility based on live peer company stock price data and interest rates based on data that you find on an external source like Yahoo! Finance. Now imagine using these calculations in spreadsheets.  What if a decimal point is off? What if you accidentally type the wrong number into the formula without realizing it? And finally, imagine just trying to remember to get each peer’s stock price on a regular basis.
  1. It Can’t Efficiently Amortize the Amount to Expense on a Daily Basis
    Of course, once you’ve calculated your expected term and volatility, you’re not finished with your spreadsheets quite yet. Once you have the fair value per share, you must apply that value across each of your option grants, across the entire service period for the grant (and we all know that calculation isn’t exactly 1+1).So again, we see an issue with data accuracy.  How can you be absolutely sure that your calculations are 100% accurate? That there are no errors, even the slightest one, anywhere in your spreadsheets? And by the way, exactly how many spreadsheets do you have?  How many external parties (i.e. your lawyers, your accounting team, etc.) have access to and can edit the data?
  2. It Can’t Automate True Up Amounts to Expense for Vesting and Forfeitures
    Once you’ve amortized the expense on grant date, you have to re-amortize it at every reporting period to true-up for actual vesting events and forfeitures.  Even if you have only 25 optionees that ends up with a lot of manual calculations in Excel.
  1. It Can’t Automate Disclosure Calculations
    Let’s say that your previous calculations in Excel are correct and there are absolutely no mistakes. Before you celebrate, remember – you still have to report a multitude of disclosures to your auditors, which means that you are now responsible for running every single report based on your spreadsheet data. Are your auditors going to be satisfied with your spreadsheets?  Are they going to take longer and cost more if they need to review your manual spreadsheets?

Let’s face it – Excel was never built to sufficiently handle the complex equity accounting and reporting requirements of privately-held companies today. While there is always a place for Excel and spreadsheets in finance, unfortunately, the real-time, accurate data calculations and reporting that ASC Topic 718 requires means that CFOs need to find new ways to centralize and automate their option expensing and reporting to better track, report and share their information. In the end, you will generate better results in less time and at a lower cost.  If you don’t see it this way, ask your auditors which they prefer.

Let us know your feedback and experience using spreadsheets for equity compensation reporting or what you are hearing from your auditors and other service providers.

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An Exciting Company Name Change from Two Step Software to Corporate Focus

Posted on April 16, 2012 by Jeremy Wright

Two Step Software changes name to Corporate Focus

Today, the Corporate Focus team is pleased to announce that we have completed the transition from using the company name “Two Step Software” and the product name “Corporate Focus” to the use of just one name, Corporate Focus, for our company name, product brand and web address. We will miss doing the Texas Two-Step, though we are excited to push forward in 2012 and beyond under one unified name, Corporate Focus.

After almost two decades of going by Two Step Software, we wanted to explain the reasons behind the change to our customers, partners, and friends. We are making this change to consolidate our name under Corporate Focus for two reasons. First, we have become a 100% cloud-based, SaaS company over the past six years and as with most cloud-based systems, your brand is your system name. Second, we wanted to make it clear we are focused on the corporate and equity needs of privately-held companies and the CFOs, controllers, attorneys, paralegals, CPAs, and auditors who work with them.

To our current and future customers, no worries. We remain committed to providing the leading cloud-based equity reporting system for emerging growth companies which helps deliver faster and more accurate results, reduce compliance risk and share information more easily, all while saving time and money. It will continue to manage your equity records, create fully-diluted capitalization tables,
run option expensing reports, and keep track of your entity and compliance information. Of course, we will still provide our A+ level of support and service that has been a hallmark of our success.

The only difference you will notice is that you will not see the Two Step logo any longer and our emails will come from Corporate Focus. When you call for support, we will answer with our friendly greetings, just by starting with “You've reached Corporate Focus.”

Change can be a great thing. The past decade has been a time of exciting change for our product, our company, and the technology market space. Just some of the changes we've seen over the years include:

  • Corporate Focus moved to the cloud. When we started this, the only “clouds” people talked about were the ones producing rain. Now, the only “cloud” we are focused on is the incredible cloud infrastructure we use to host our system with our partner Rackspace.
  • In fact, we moved everything to the cloud. In the past, our internal files were stored in our offices, and sharing documents and information was difficult and time-consuming. Now, we take care of all of our internal business needs using cloud tools such as Salesforce, Google Apps, and Ontime. Our team works from both coasts, whether at home, in the office, or on the road.
  • We embraced new technology. We were previously a Windows-only office and technology. In fact, in our earliest days, some of our computers were as big as a small puppy. Now, we use Macs, Windows PCs, iPads, iPhones to get our work done at a faster pace
  • We saw the rise and evolution of FAS 123R.
    FAS 123R came, stayed, and had a name change to ASC Topic 718. The work involved in implementing it is still as complicated as ever (if you're using a spreadsheet).
  • But one thing hasn't changed… I still work with the best team of people anyone could ask for. Without their dedication to delivering a great product and providing outstanding support to our customers, none of the other changes would be possible.

I look forward to what changes the future will bring to our offering and to the new and exciting companies we get to work with every day. Each day, we have new start-up companies signing up for Corporate Focus and we have existing customers completing their exit by going public or being acquired.

In the spirit of change, I'm also thrilled to announce the general release of the latest version of Corporate Focus. This release includes cross-browser support in modern browsers, native promissory note tracking, and improved warrant tracking. I am excited to release these highly requested features to our customers, so they can generate fully-diluted capitalization tables that now report early-stage convertible note financings from any Mac or Windows computer. You can read more about the upgrade in our Version 7.0 press release.

Finally, thanks again to all of our customers who have been integral to our success so far. As the “Corporate Focus” team, we look forward to working with you and sharing in your company's continued growth and success.

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Ever Wish You Had a Primer on ASC Topic 718 (FAS 123R) Reporting?

Posted on March 27, 2012 by Gary D. Levine

In the scramble of year-end financial reporting, equity compensation reporting is often left to the very last minute. And it’s usually in that last minute when you realize that a stock option expensing primer would be pretty helpful.

Whether you’ve cleared your year-end financial reporting hurdle or are currently calculating your variables for your Black-Scholes valuation, you’re in luck.

Our ASC Topic 718 Toolkit provides:

  • Year end financial reportingA full explanation of the variables, terms and disclosures you need to know to properly report your stock option expense.
  • Sample reporting templates for stockholder administration and equity compensation reporting under ASC Topic 718
  • Results of the NCEO equity compensation survey of over 200 privately-held companies
  • Five best practices you need to know to simplify your stock option reporting and expensing

We’ve also included a case study that shows how a knowledge management tech company realized significant cost savings and improvements in their auditing process by automating their stock option reporting and expensing.

To download our ASC Topic 718 Toolkit, click here.

Have an idea for a tool, or is something missing that you want to see? Let us know in the comments below.

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Sec. 409A Valuations: Do It or Skip It At Your Peril.

Posted on March 22, 2012 by Gary D. Levine

Sec. 409A Valuation

Every year at about this time, we’ve just finished helping many of our Corporate Focus customers with questions that come up from their auditors and the finance team is looking forward to taking a break from equity compensation reporting. However, there is one question that we hear frequently at the tail end of these conversations, just as CFOs start to turn their attention to this year instead of last year. They want to know: “Do we need to do another Sec. 409A valuation of our common stock for the purposes of our next set of stock option grants?”

It’s typically in the context of finishing up last year’s financial statements which will now form the basis for considering whether the company’s valuation has changed and therefore the fair market value for stock option grants has changed from last year or last quarter. The simple answer is “Yes.” The primary question is whether based on your most recent financial statements that you just completed, you feel the company is worth the same amount as it was worth last year (or the last time you did a Sec. 409A valuation) or has it changed (hopefully in the right direction … more customers, more revenue, more employees, new markets)? Of course, if you have a recent, arms length transaction, you may know the valuation or you may have a recent third-party valuation.

So to be safe, smart and prepare for a future exit, it is worth every penny to get a valuation that complies with one of the safe harbor valuation methods or an update to your last one (which should cost a lot less). Hopefully, your equity is worth a lot more to your employees than the cost of an update to your last valuation.

Is it time and money that could be better spent elsewhere and a regulation that is applied to emerging-growth, privately-held companies based on the option backdating scandals from 2006 that applied to publicly-held companies? Absolutely. Is it smart to get a valuation that complies with one of the safe-harbors? Absolutely.

But luckily, Dave Broadwin, a partner at the law firm of Foley Hoag LLP, has written a short article that explains Sec. 409A very clearly and concisely: Sec. 409A Option Pricing Redux. And, if you want to understand the three valuation safe harbors, take a look at his earlier article called: Options and 409A — Sometimes the law is an ass. I recommend these articles to any CFO who wants to have just enough information to intelligently talk to his tax or legal advisers and make the right decision.

Our goal is to ensure that if you are doing your equity compensation reporting with
Corporate Focus that you also stay clear of any nasty tax consequences since that will certainly turn “incentive” stock options into a big, fat “disincentive” for you, your company and your employees.

Related Articles:

  1. Recommendations for Winning the Stock Option Valuation Game
  2. The Overlap of FAS 123R and Sec. 409A in the Stock Valuation Game
  3. Stock Option Valuation: How Hard Have They Made It?
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Calculating Vested or Expected to Vest

Posted on March 16, 2012 by Jeremy Wright

Corporate Focus Calculations

During any audit season, our support experts receive numerous questions on how vested or expected to vest is calculated. The typical question relates to why was the value one number on grant date and another number after applying the true-up. The number vested or expected to vest is a two part calculation. The vested portion is the amount of exercisable options as-of the current reporting date. The calculation of expected to vest relates directly to how Corporate Focus applies a forfeiture rate to an option’s vesting schedule. The sum of these two values is the vested or expected to vest amount. This value not only tells all of the options that can currently be exercised, but also what the company expects to vest over the life of all remaining outstanding options.

To demonstrate, let’s assume an option was granted on 4/1/2010 for 1,000 shares with this vesting schedule. The company has set a 10% forfeiture rate.

4/1/2011 – 250
4/1/2012 – 250
4/1/2013 – 250
4/1/2014 – 250

When generating the expected to vest for each of these vesting tranches, Corporate Focus does the following:

  • Days to Vest = Calculates the number of days between each vesting tranche and either (a) the date of grant if this is being calculated on grant date or (b) the start of the next fiscal year if this being calculated at the end of a reporting period.
  • Annualized Rate for each vesting tranche = (1-ForfeitureRate/100)^(Days to Vest/365)

The expected to vest is then summed across each vesting tranche to give us the total expected to vest to use for this option.

Because Corporate Focus assumes that at each reporting period, the option is more likely to vest, the number of days used in the calculation will go down. This methodology is referred to as the dynamic method of applying the forfeiture rate.

This spreadsheet (thank you Google Docs) demonstrates how the vested or expected to vest will be generated on grant date, on the first reporting period (fiscal year 2010), and how it will be generated again in the second reporting period (fiscal year 2011). Click on each worksheet in the example to see the breakdown.

On Grant Date
When calculating expected to vest on grant date, the days to vest is calculated between the grant date (4/1/2010) and each vesting tranche. This results in Corporate Focus estimating that 77.36% of the option will vest for a total vested or expected to vest of 773.62. Keep in mind that the forfeiture rate is a compounded annualized rate from year to year, which results an estimate of more shares being forfeited than if you were to just take the forfeiture rate one time.

First Reporting Period
At the end of fiscal year 2010, a true-up is run and Corporate Focus recalculates the expected to vest based on the time period 1/1/2011 – through end of vesting. Again, this is done, since it is more likely that the employee will stay with the company and the option is less likely to be forfeited.

When this calculation is run, it is now estimated that 83.75% of the option will vest for a total vested or expected to vest of 837.53.

Second Reporting Period
At the end of fiscal year 2011, a true-up is run again and vested or expected to vest is based on the time period 1/1/2012 – through the end of vesting. Note that during 2011, the first employee vests 250 shares, so this counts as the vested portion of vested or expected to vest. The final three vesting periods go into the expected to vest portion. In total, Corporate Focus now estimates that 91% of the option will vest for 909.94 shares.

If the employee never terminates, this calculation will happen every reporting period until the option fully vests.

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If you would like to learn more about the valuation and expensing work needed under ASC Topic 718, check out our blog series

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Jumpstart Our Business Startups (JOBS) Act: It’s the Right Move

Posted on March 9, 2012 by Gary D. Levine

Business Startups (JOBS) Act:

When you’ve helped more than 200,000 start-ups and emerging-growth companies track their stockholder and stock option information for 25 years, you have a pretty good sense of when something is great for “Start-Up America.” And the past decade certainly presented its share of challenges for early-stage companies starting with the dot-com bubble that burst in 2000, the massive corporate accounting scandals that gave way to Sarbanes-Oxley in 2002, and the turmoil in the financial markets that has dried up VC financing and closed the IPO markets since 2008.

But today, with the interest in SecondMarket and SharesPost on the private market side and the IPOs of LinkedIn, Groupon, Zynga and Facebook, there seems to be new promise stirring in both the public and private markets.

And with that in mind, I am very excited about the Jumpstart Our Business Startups (JOBS) Act that was passed by the House yesterday with bipartisan support and is also supported by the Obama Administration. Harry Reid is reported to be planning to submit similar legislation in the Senate shortly.

I know many people are more focused on the four bills that are geared toward more mature emerging-growth or mid-market, privately-held companies, letting them delay many of the onerous SEC reporting requirements, increasing the size of a Reg. A offering, increasing the stockholder limit before a company has to report under the 1934 Act, and increasing the number of shareholders that may invest in community banks.

However, I’m most inspired by the two bills that will directly help start-ups and earlier stage, privately-held companies get access to investment capital faster and easier:

  • H.R. 2930 applies to very small companies that may not yet appeal to professional investors. It permits a company to use “crowdfunding” and the Internet to raise up to $1 million (or $2 million when audited financial statements are provided to investors) as long as the amount invested does not exceed the lesser of $10,000 or 10% of the investor’s annual income.
  • H.R. 2940 permits companies to take advantage of the exemption provided by Rule 506 of Reg. D to raise money, even when they are using “general solicitation and advertising” to find investors, as long as the investors are “accredited.”

For early-stage start-ups – or those with just a great idea – it would mean they could raise up to $1 million by listing their equity financing needs on a website like Kiva or Kickstarter (if new sites are designed to sell equity). They would be able to find out directly and immediately the level of interest in their business ideas and get funded by a broader spectrum of investors.

It’s amazing how many companies on Kickstarter have raised many times their target amount because there is such interest in funding great ideas – and offering some of the equity would help broaden the interest. Then, for those looking to raise more than $1 million from VCs or more experienced investors, the company could advertise in a trade journal, hold a meeting, and send out email messages – all without worrying that it might violate the solicitation limitations.

If you have a great idea, why not tell the world? We’re all looking to get a piece of the next Foursquare, Evernote, Etsy, or Pinterest – or at the least, we just want them to succeed.

The JOBS Act would help tens of thousands of companies get the amount of financing they need to get to the next level.

If you agree, let your Senator know today.

A good summary of the JOBS Act can be found in the Feb. 28, 2012 press release at the House Committee on Financial Services website.

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New White Paper: Five Steps To Simplify Your Stock Option Reporting and Expensing

Posted on February 28, 2012 by Gary D. Levine

Simplify Stock Option Reporting and Expensing

Let’s face it – no one wants to spend a lot of time and resources on their equity reporting. In fact, for most privately-held companies, stock option reporting and expensing probably doesn’t feel like a critical part of running and building the business when there are more important areas to deal with, including your human resources, product development, sales and more.

However, we’ll argue that streamlining your essential data and processes plays a critical role in the successful growth of your business. After all, as your company grows, so too does the complexity and size of the data you have to track, not to mention the scrutiny of your investors, board members, auditors and attorneys.

And really, who needs to spend more time dealing with that?

Whether you’re looking to raise your next round of financing, or perhaps considering an exit event, in the end, it’s all about the value of your equity. So it stands to reason that the sooner you take control of your stock option reporting and expensing, the better position you’ll put your company in to deliver accurate, auditable equity reports that can withstand the scrutiny of your lawyers, auditors, board and more.

To help you get started, we offer 5 steps to simplify your stock option reporting and expensing, including:

  1. Consolidate Your Information Into One Centralized System
    Too often, data is tracked in different places by different people, which often results in duplicated efforts and inaccurate data that could cost you quite a bit in wasted time and money down the road. Consolidating your information into one centralized system is an excellent practice to not only eliminate potential data entry errors and eliminate redundancy, but also could allow for automation of manual calculations, data standards validation, and more.

  2. Connect Your Records With Your Equity Accounting Calculations
    Trying to populate and connect multiple worksheets with manual formulas, all while generating accurate numbers, takes too much time and introduces potential errors. However, if you connect your equity administration records with your option expense calculations in one centralized system, your risk of error reduces greatly, saving you (and your auditors) precious time in review.

  3. Integrate Equity Reporting With Accurate Data and Audited Calculations
    Your investors, board and auditors only care about one thing – your equity reports. And at this point, if there’s an error in your data, it will take hours to find. Ensure your equity reports are primed for success by automating complex calculations and reporting from one centralized system that houses one set of standardized, audited data.

  4. Organize and Connect Your Documentation
    Get yourself deal- or audit-ready by connecting your supporting documentation to your electronic records in the same system in which you house your data. This way, you can easily link and quickly retrieve supporting documentation for any third-party who requests a review, saving you time, additional resources and potential headaches down the road.

  5. Enable Sharing and Self-Service Reporting To Your Team
    Save yourself (and your voicemail and inbox) some time and headache by not only allowing other parties, such as your board, your HR team, your legal team and your auditors to access your equity reporting system, but also to print pre-prepared self-service reports that highlight the key data they need the most.

To learn more about the best practices in simplifying your equity reporting process, we invite you to download our latest white paper, “Five Steps to Simplify Your Stock Option Reporting and Expensing.”

To download the whitepaper, please click here.

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Stock Option Expensing Under ASC Topic 718 – Explained.

Posted on January 26, 2012 by Gary D. Levine

Stock Options

As companies scramble to pull together their year-end financial statements, emerging-growth companies often leave equity compensation reporting to the very last minute. But to report their numbers to investors and auditors, any company that has an employee stock option plan and reports in accordance with GAAP needs to determine how much compensation is related to options granted to employees in the current year and how much to amortize for previous grants.

CFOs and Controllers working on their compensation expense numbers have either already implemented a system for stock plan administration and reporting – or they’re still using old-fashioned spreadsheets. In either case, at this time of year, our support team at Corporate Focus gets a barrage of questions about certain common areas of stock option expensing under ASC Topic 718 (previously FAS 123R). Our customers – and those not yet using a system – are trying to figure out the variables that go into the Black-Scholes valuation equation and how to properly amortize equity compensation expense over the service or vesting period.

While a system or spreadsheets may be able to handle the heavy lifting, anyone doing stock option expensing needs to have some understanding of what they’re doing (even if it may be a lower priority than cash related items for fast growing, venture-backed companies). If that’s you, you’re in luck. When our customers and friends need a quick primer on stock option expensing, we refer them to a three-part series from our blog that explains the task in clear, concise steps. If you’re looking to get a better handle on this tricky topic, check out these posts:

Part 1: Valuation and Black-Scholes Variables. Explained.

The first part explains the six variables used by the Black-Scholes formula to determine the grant-date fair value for a stock option award.

Part 2: Expensing Stock Options. Demystified.

The second part explains the eight terms you need to know in order to properly amortize the fair market value over the service period, including the true-up related to option vesting and forfeitures.

Part 3: FAS 123R Reporting Disclosures. Clarified.

The third part explains the two disclosures related to the valuation summary and the nine disclosures related to option activity during the period, as required by ASC Topic 718-10-50 (previously para. A240 under FAS 123R).

Spend a few minutes reading each of these blog articles, and you’ll come away with a solid understanding of the basics of stock option expensing, including how the option value is determined, how it’s amortized each year, and the requisite disclosures. It will be a great investment of your time prior to moving ahead with your equity reporting.

Stock option expensing is highly complex and requires adjustments every reporting period. So if you don’t know it yet, it’s worth taking the time to learn. At a minimum, these articles will give you enough information to ask the right questions of your accountant or auditor. And you just may finally understand what’s going on in your stock plan administration and reporting system (or spreadsheet).

If you can recommend a great resource for stock option expensing that applies to privately-held companies, let us know and we’ll be happy to share it with others.

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