Controls around Share options 2000



  • In a recent discussion with our auditors, they recommended that further controls be put in place with regards to share options.
    Controls we already have in place refer to the approval by the board prior to issue, timely updates, review of Share capital called but not paid, and reconciliations.
    Could anyone suggest other controls that could be implemented here? I’m aware that backdating of share options has been an issue in many corporatations recently and was wondering if this was where our focus should be. If so, what kind of internal control would ensure that the share options are not entered at a back-dated value?
    Thanks.



  • Hi EMM – Yes, the SEC itself is looking to add controls on backdated options and how shares might be internally paid out to executives and other employees. Otherwise, you all are probably in good shape with your existing controls.



  • In addition to board approval, other controls included in our documentation were based on the FASB staff position listed below discussing the criteria of mutual understanding.
    No www. necessary:
    fasb.org/fasb_staff_positions/fsp_fas123r-2.pdf



  • Maybe I’m just not seeing them, but I don’t see any controls over the financial accounting for the options. This is a very complex area and may be what your auditors were refering to.



  • Thanks for your comment.
    At the time that KPMG made their query, they hadn’t reviewed our controls, (exemption from auditor attestation) but wanted to ensure that we were adequately covered off.
    The controls we have should reflect the accuracy (reconciliation), validity (approvals) and completeness (checking updates on an ongoing basis).
    We apply trinomials to estimate their value and the actual accuracy of our caluclations is subject to audit and I would not consider it to be a control in itself.
    What I am looking for is a control that would ensure that share options are never granted at a back dated value (although this should be quite clear on the review of opening values and dates which are all checked back to yahoo finance and entered onto our spreadsheets (spreadsheet controls are considered on a separate basis) in accordance with GAAP requirements.
    Do I need to enter a key control which shows that the grant date values are checked to a third party source on an annual basis?



  • Do I need to enter a key control which shows that the grant date values are checked to a third party source on an annual basis?
    Absolutely. You need this as a valuation control.


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