Financial Reporting for Employee Stock Purchase Plans

Employee stock purchase plans (ESPPs) are making a comeback. But the benefits—including relatively low volatility, improved talent attraction, and a personally invested workforce—are accompanied by unique reporting complexities.

The first challenge is to create awards in the administration system for each participant. Next is maintaining the data to reflect activity such as enrollments, purchases, and terminations. Future purchases must be estimated, then reconciled with actual purchases.

And then there’s keeping up with the numerous modifications available through an ESPP program. These include percent contribution changes (which essentially change the award by affecting future estimated purchases) and rollovers (which trigger additional modifications and necessitate the creation of child awards).


As part of our financial reporting service for ESPPs, Equity Methods takes on the following processes:

Database Development

  • Create awards for each plan participant, using historic purchase information your HR team provides
  • Create withdrawals and forfeitures using HR termination data
  • Look back two six-month periods to estimate each participant’s contribution going forward

Change Management

  • Create awards for plan participants when needed
  • Convert purchases into exercises
  • Convert terminations/withdrawals into cancellations and calculate the necessary reversals
  • Track prices and determine whether a modification is needed
  • Manage modifications, resets, and rollovers
  • Determine the impact of changes in contribution percentages

Financial Reporting

  • Create ledger entries specifically for ESPP reporting
  • Estimate total expense based on purchases and contribution percentages
  • Calculate the true-up component for actual shares purchased compared with the previous estimate
  • Calculate dilution based on modification considerations including rollovers and resets
  • Calculate shortfalls resulting from disqualifying disposition events
  • Calculate any incremental cost from modifications and include it in reporting going forward

Stay on top of a complex ESPP, support internal stakeholders with precise, up-to-the-minute information, and deliver better reporting in your external financial statements.