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, Inc.blog.twostep.com

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.

 

More from this blog

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.

43186

Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.

75634

Allan Boress, CPA, with over 25 years as a practitioner and consultant to the accounting profession. Mr. Boress is the author of 12 published books in 6 different languages, including a best-seller, The "I-Hate-Selling" Book.

48143

Larry Perry, CPA, CPA Firm Support Services, LLC, is the author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He blogs about small audits, reviews, and compilations.

88623
Sandra Wiley, COO and Shareholder, is ranked by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her prominent role as an industry expert on HR and training as well as influence as a management and planning consultant. She is also a founding member of The CPA Consultant's Alliance. Sandra is a certified Kolbe™ trainer who advises firms on building balanced teams, managing employee conflict and hiring staff.
20329

Maria Calabrese, CIR, Human Resources manager for Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC in Cranford, New Jersey, Maria's topics revolve around the world of: Mentoring, Performance management, and The "Y Generation," a.k.a. "The whY generation".

55326

William Brighenti is a CPA, Certified QuickBooks ProAdvisor, and Certified [Business] Valuation Analyst, operating an accounting, tax, and QuickBooks consulting firm in Hartford, Connecticut, Accountants CPA Hartford.

80294

Ken Garen, CPA, is the co-founder and President of Universal Business Computing Company (www.ubcc.com), a software development firm of high-volume, high-productivity accounting and payroll technology.

24802

Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.

63810

Amy Vetter, CPA, CITP is the CPA Programs Leader for Intacct Corporation responsible for leading the CPA/BPO Partners nationally.

34244
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
102340
Scott H. Cytron, ABC, is president of Cytron and Company, known for helping companies and organizations improve their bottom line through a hybrid of strategic public relations, communications, marketing programs and top-notch client service. An accredited consultant, Scott works with companies, organizations and individuals in professional services (accounting, finance, medical, legal, engineering), high-tech and B2B/B2C product/service sales.
25648

Rita Keller is a nationally known CPA firm management consultant, speaker, author, mentor and blogger. She has over 30 years hands-on experience in CPA firm management, marketing, technology and administrative operations.

52260
Stacy Kildal is the mom of two fantastic kids, an Advanced Certified QuickBooks ProAdvisor, Certified Enterprise Solutions ProAdvisor, Sleeter Group Certified Consultant, a nationally recognized member of the Intuit Trainer and Writer Network, and co-host of RadioFree QuickBooks.
27537
Michael Alter's blog specializes in providing practical advice to those who seek greater profitability and practice management tactics that enhance deeper client relationships.
31838

Sally Glick, CMO, Principal, Marketer of the Year in 2003 and AAM Hall of Famer in 2007, leads a lively discussion of the constantly expanding roles of marketing and the professional marketers that drive this initiative in accounting firms of all sizes.

100075

The IMA Young Professionals Blog features the insights of IMA’s Young Professionals Committee. Committee members share advice and experiences on careers, continuing education, work/life balance, and other issues affecting young accounting and finance professionals.

33012

FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI.

111023

Sue Anderson has 30 years of experience in continuing education for accountants. Currently she is the program director for online CPE provider CPE Link.

60719

Jim Fahey is COO of Apple Growth Partners, a regional CPA firm in Ohio. His focus is on the effective and efficient use of technology within the firm by all team members.

38953
Caleb Newquist is the Editor-in-Chief of Sift Media US, overseeing content for both AccountingWEB and Going Concern.
66169

Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of "The Yellow Book Interpreted" and owner of Yellowbook-CPE.com a website devoted to training for governmental auditors.

92177

AccountingWEB is more than just a U.S. team of journalists and financial and technology experts - we have an international side, too! Members of our British team who publish AccountingWEB.co.uk share their ideas, insights, and perspectives from across the pond.

53217