Capitalization Matters

As if the changes from FAS 123 to FAS 123R back in 2004 were not complicated enough, under FASB's Accounting Standards Codification project, as of Sept. 2009, FAS 123R has been recodified and will now be known as FASB ASC Topic 718 - Stock Compensation.

I was at a law firm the other day listening to three attorneys debate whether their spreadsheets were a satisfactory tool for doing their transactional clients' capitalization tables. The first attorney (we'll call her Susan) said that her spreadsheets were fine. Her stock plan administration worksheets rolled up automatically into a few other worksheets for a client's capitalization tables and those worksheets could show the data by class, type, date, and fully-diluted.

It all sounded very complicated, but I was impressed.

As I was starting to write the first part of my new blog series: Five Ways to Perform Year-End Equity Management and FAS 123R Reporting Faster, I received an email from a new customer who recounted a conversation he imagined between him and his auditor. It was timely because it set out nicely how an equity management system would make year-end FAS 123R reporting faster and save audit fees.

As the founder of Two Step Software, I've been asked numerous times how to simplify the many complex aspects of equity management. When we developed our online system 15 years ago, our goal was to use a database application to make the equity management and reporting process easier, faster and more accurate. And as we continue to work with new customers and listen to their challenges, we often come back to the same three-part framework that can be used create a solid foundation for anyone involved in this type of work. The basic framework consists of the following:

In a recent blog post, I discussed a webinar I attended from Stock & Option Solutions relating to five common mistakes made in year-end equity management work and a few automation secrets that can be used to avoid them. I summarized what I learned as follows: