Resolving Equity Accounting Issues for Global NYSE Company with Multiple Grant Types

Financial Intelligence, LLC

Our client is a NYSE-listed global company with equity compensation grants outstanding including stock options, SARs, restricted stock units, and performance awards. Administration of the Plan was outsourced to a third party, and the client was encountering significant accounting issues stemming from the limitations of the administration and accounting platform utilized by the service provider. The company’s auditor noted deficiencies in the equity compensation accounting area, and recommended that the company seek guidance to remedy the shortcomings of the outsourced system.

Financial Intelligence was engaged to first correct the accounting problems caused by the platform so that the client could accurately complete its quarterly and fiscal year financial reporting while the company reviewed various alternatives to its service provider. This process included the following services:

► Review the outstanding awards to determine the accuracy of the grant and participant details as maintained in the outsourced administration platform, and work with the third-party administrator to correct data errors
► Analyze the valuation of all outstanding awards as prepared by the company, and ensure accuracy of the valuation in the administrative platform
► Identify inaccuracies in the expense reports cause by either data issues or incorrect application of the accounting standards by the platform, including the incorrect application of estimated forfeiture rates and incorrect treatment of retirement-eligible awards
► Calculate the effect of the inaccuracies to be remedied in the financial reports

Following the completion of this project, the client again turned to Financial Intelligence to manage the accounting conversion of its equity compensation plans when switching to a new broker-based, outsourced administration provider. Unsatisfied with the equity compensation reporting provided by the broker system, the company asked FI to take over this aspect of its financial reporting.

Financial Intelligence managed the data and accounting conversion into our accounting platform and performed reconciliations against the administration platform and against the previous accounting platform. Our conversion process included:

► Reviewing the Plan documents to ensure that the parameter were accurately established in the system
► Determining the retirement-eligibility of all active participants, and setting the eligibility dates at the grant level to ensure expensing over the correct service period
► Setting up performance criteria for the performance-based awards to ensure compliance in the expense and common equivalents reporting
► Calculating the cumulative effect to the expense of the change of platforms

The client requires frequent adjustments to the existing awards as performance expectations change and participants become retirement eligible. Additionally, we account for personalized prorated vesting upon termination as provided in their plans. We work closely with the company’s internal staff to ensure that all details are reflected accurately in the quarterly and fiscal year reporting we provide on an ongoing basis.

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