Size Complexity
The sheer volume of a plan can make the accounting challenging – even very vanilla plans that are large in size are plagued by moving parts and processing difficulties that can create external audit risks. While many large firms grant complex awards, they may face challenges just due to the intricacy of their internal reporting requirements: posting to many general ledger accounts; tracking expense by segment, cost center, etc; and managing a multinational plan.
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The following questions and issues should be considered when evaluating your current financial reporting processes:
Does your process require manual spreadsheet intervention?
- Large companies actually seem to rely most heavily on very manual processes, which are required due to the intricacy of their reporting requirements. As the authors of that process turnover or award designs change, the underlying spreadsheets grow in risk.
- Large companies tend to benefit the most from automated processes. Our solutions result in a custom process for each client that produces the specific reports needed within their reporting environment.
- Unfortunately, traditional off-the-shelf software solutions often do not solve the problem: these products automate calculations, but produce a “fire hydrant” of data that take companies hours each period to convert into a “drinking fountain” that is married to their reporting environment.
- The strategic objective is to transform clients from doers into reviewers.
Do you need to track and allocate expense across multiple indicative data categories?
- Common indicative data categories include: cost center, country, P&L line item, business and segment.
- Often, different functional report users require different levels of granularity. For example, the external reporting group may need all 9 digits within a cost center (e.g., 9091005000) whereas the tax department may only need the first 5 digits (e.g., 90910).
- Expense allocation nuances like this are most prevalent among large companies with a corresponding large general ledger and functional base of users (both domestically and abroad).
Do you grant equity awards internationally?
- The presence of recharge agreements dictates whether tax deductions can be taken in most non-US jurisdictions. Deferred taxes should be recorded at the tax rate in the jurisdiction in which the awards are granted.
- Some of these jurisdictions are likely to file standalone IFRS 2 financial statements.
- If employees are mobile, it is important to assess the extent to which this mobility should be tracked. In the most pure (conservative) case, the expense and corresponding DTA should be bifurcated on a pro rata basis according to the time spent in each jurisdiction, and then “frozen,” so as to be referenced at award settlement.
Are your functional groups fragmented?
- Large companies often have siloed processes, whereby one functional group owns the expense calculations (usually external reporting), a different group owns the diluted EPS calculations (usually treasury), another one owns the deferred tax calculations (usually tax), and a host of other groups share responsibility for IFRS reporting, management forecasting, and data management.
- Siloed processes are dangerous because rarely does any single individual have purview into the entire process and its interdependencies. Instead, groups are prone to making assumptions about what the other groups are doing, and inevitably one of these assumptions proves incorrect.
- Our solutions are developed to equip all functional groups with a common base framework and view of the raw data, and are customized to their specific reporting needs and requirements.
At Equity Methods, we have unparalleled expertise in supporting large multinational plans, and industry-leading technology to ensure stability and reliability. From CFOs and auditors, to controllers and tax accountants, each equity compensation compliance process stakeholder has different objectives and concerns with regard to equity award data. We work with each stakeholder to ensure the process fits their specific reporting objectives.
Relevant Case Studies
Relevant Whitepapers
Introduction to Expected Term | 2010
Relevant Issue Alerts
ECIA: Making Sense of Forfeiture Rates | 2010
ECIA: Best Practices in ASC 718 Forfeiture Rate Estimation | 2009
ECIA: Identifying and Optimizing a Fragmented ASC 718 Process | 2010
