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Improve Equity Compensation Management

Posted by: Today's Tip Contributor on August 17, 2010

When the financial accounting standard No. 123 was revised in 2004, it changed the equity management landscape in myriad ways. Ostensibly, FAS 123(R) was designed to simplify equity reporting and mandate one standard method for fair-market-value-based accounting and compliance. One result, however, was an urgent need for more comprehensive reporting strategies and supporting technologies. This created a significant burden on the chief financial officer and finance team. Inadequate reporting under FAS 123(R) can lead to costly audits.

In the face of that risk, businesses of all sizes are finding reasons to upgrade to collaborative technologies. Here’s why your organization should follow suit:

1. Traditionally, most businesses conducted equity management via Excel spreadsheets. The additional regulatory scrutiny that came along with the introduction of FAS 123(R) makes this approach unmanageable for most companies. Today, equity compensation management is too complex and the risks are too high to manage with mere spreadsheets.

2. To make things worse, more entities within the organization have a vested interest in the data than ever before (e.g., CFO, controller, stock plan administrator, participants). External organizations (e.g., lawyers, accountants, auditors, investors, etc.) also now have a stake and must have access to the data. The only practical way to provide real-time, accurate data to all these entities is to leverage collaborative tools.

3. Advanced software-as-a-service (SaaS) solutions are easy to adopt and to integrate into existing IT systems and can be used to satisfy all audit requirements regarding FAS 123(R).

So what should you look for when you’re ready to abandon your spreadsheets in favor of a more comprehensive approach to FAS 123(R)?

1. Make life a bit easier for your accounting department and opt for an all-inclusive solution that offers equity administration, valuation, and compliance all in one.

2. Don’t make stringent reporting and compliance regulations an extra burden for your IT staff; look for an SaaS-based offering that can be accessed via a secure Web connection.

3. Ensure that the solution you choose maintains a complete audit trail of all changes to the equity plan.

4. You need more than great technology. Choose a solution that is backed by knowledgeable CPAs and CEPs who can quickly and clearly answer your real-world questions about equity compliance and reporting.

Kim Kovacs
CEO and co-founder
San Juan Capistrano, Calif.

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