Be Happy Generating Your FAS 123R Year-End Disclosures | AccountingWEB

Be Happy Generating Your FAS 123R Year-End Disclosures

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.

Mr. Auditor*: How did you come up with a discount rate of X% and volatility of Y%?

Controller*: It was actually done by our FAS 123R reporting system, Equity Focus, using Yahoo closing price data for the selected peer companies and interest rates from the Federal Reserve site.

Mr. Auditor: How do I know I can trust your numbers? Got any back up showing how you came up with the discount rate and volatility?

Controller: Here's a report that sets out all of the discount rates used by period and stock closing prices for the selected companies by day for the expected term period, as well as the formulas used to derive the volatility. Have fun. Now leave me alone.

*Names have been changed to protect the guilty.

That hypothetical conversation when the same equity management system is used to do all of the stock plan administration and FAS 123R disclosures is short and sweet. It illustrates why using a consolidated system decreases the time a FAS 123R audit takes. The auditor asks the questions that need to be asked when doing a FAS 123R audit in order to get the back-up data for the assumptions. The Controller or CFO can quickly provide the auditor with all of the back-up information with just a click of a button. That can only be done if you're using an automated equity management system.

Now, let's compare that "happy" conversation to a "sad" one I imagine a lot of private companies have with their auditors if they're still using Excel spreadsheets.

Mr. Auditor*: How did you come up with a discount rate of X% and volatility of Y%?

Controller*: I had to go to Yahoo Finance to download the closing prices for each of my peer companies. Then, I went to the Federal Reserve site to download the interest rates. I then did these crazy calculations and used them to generate my fair value. Here are my spreadsheets showing the fair value calculations and expense for the period.

Mr. Auditor: How do I know I can trust your numbers? Got any back up showing how you came up with the discount rate and volatility?

Controller: (Sound of papers rustling and mouse buttons clicking in the background) I can't find the back up information. I may have misplaced it after using the variables in my calculations. Trust me. I followed all the steps we discussed last year to generate those values.

Mr. Auditor: That's not going to cut it. I need to see exactly how you came up with those variables. You'll need to do them again before I can accept your disclosures.

Does that sound vaguely familiar? If so, that's exactly why an equity management system should be used to generate your FAS 123R disclosures and turn that frown into a smile.

If you have a similar story, I encourage you to share your experience in the comments.

Download our FAS 123R Productivity Kit for more information on how you can get your FAS 123R reporting done faster, better, and save audit fees.

This blog post was contributed by Jeremy S. Wright, Vice President of Customer Services at Two Step Software.

Gary D. Levine, President and CEO
Two Step Software,

This blog

by Gary Levine - Gary Levine is the CEO and Founder of Two Step Software which provides market leading solutions for stock plan administration and corporate governance. His perspective is based on 20 years of experience.


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