ASC718 Version 2 Overview

Version 2

We’ve been hard at work rebuilding our expense accounting and financial reporting tools from the ground up. We’ve made reporting equity compensation expense stable, easy, automatic, and compliant. See below for a summary of the changes and features coming out with our new tool.

What's new

Locked down expenses - Historical changes to your cap table won’t impact your prior calculated expenses and disclosures. Reports will always tie out from month to month, mitigating the need to reconcile.

True ups for retroactive transactions - Securities retroactively issued or terminated after the books have been closed will automatically true up in the next period with notes indicating the transaction for easy reference.

Accounting for change of relationship - Whenever your equity holders change relationship that constitutes a change in methodology, we automatically switch attribution and valuation methods. Our tool will also true up any expenses to match the new relationship.

Custom period reporting - Export a report of your disclosures or expenses over any custom time range without recalculating your normal reporting period expenses.

Combined grant date and mark to market reporting - We no longer break out expenses and disclosures by grant date and mark to market. All expenses and disclosures appear on one report.

Separate disclosure and expense reports - Disclosure and expense reports are now separate downloadable spreadsheets making it faster and easier to get the information that you need.

Disclosures with itemized contributions for each award - Disclosures are simple to audit with itemized disclosures breaking out the contributions for every award in the reporting period.

Automatically calculated reports at the end of every month - No more waiting for your reports to run for each period. We’ll have the most up-to-date numbers when you log in. When you need to make a correction, recalculating to account for any changes in a reporting period is fast and easy.

Set up everything just once - Reduce the risk of errors when calculating your expenses. Set your forfeiture rates, peer companies, and fair market values just once and only update them as needed.

Cost center and stakeholder allocation - Break down expenses by cost center or any stakeholder event in their own respective tabs.

Support for public companies - We built from the ground up to support public companies. Easily export disclosures and expenses for any quarter or year.

Peer companies and forfeiture rates - You can now add or change a peer company or forfeiture rate for any time period, no longer is it attached to the reporting period. 

Changes in accounting methods 

You may see some changes in recognition of expenses under a few transactions. While most companies should see minimal differences, there are a few things to watch out for. We’re happy to help reconcile your migration if necessary.

Cancellations - In the prior version of our expensing tool, we stopped expensing canceled securities at the cancellation date. In the new version, by default, we continue to expense canceled awards to give you the tools to calculate any incremental expense offline. In the event of cancellation without replacement we can accelerate any remaining expenses in compliance with ASC 718-20-35-9. During our initial release, contact us to let us know if you need to switch treatments.

Relationship changes - Relationship changes applied to a stakeholder will be applied to the expense. In prior versions when calculating expenses, we only valued the award based on it’s relationship at the time the report was ran. Our new tool will recognize relationship changes as they occur.

Risk free rate calculationWe've implemented a simpler, more audit friendly, risk free rate calculation.

Service period includes vest date option - We now have a setting on whether you would like to include the vesting date as part of the service period for expense attribution. For our migrating customers, we recommend continuing to expense using the “service period includes vest date” method.

Modifications are ignored - In order to lock down expenses we record the state of the award when expense is first calculated. Any changes to the award are ignored for calculating expense. To include a modification, simply recalculate from the period where the security was issued. We’ll be building out support for modifications over the coming months. For any questions, contact us.

Changes in minimum disclosures

Combined disclosures - All disclosures are combined in the same report. There are still specific disclosures broken out between the different methodologies in addition to combined.

Combined restricted stock disclosures - RSAs and RSUs are now combined in the same disclosures rather than each listed separately.

Weighted average remaining recognition period of unamortized expense (WARRP) - Weighted average remaining recognition period now uses the remaining vesting life of the whole award, instead of summing all vesting tranches.

Additional Disclosures -

  • Early exercises are broken out from exercises of vested quantities.
  • Summary of the restricted stock outstanding at the end of the period.
  • Assumption disclosures for mark-to-market awards as well as a combined view.
  • Summary of restricted stock outstanding at the end of the period

Disclosures are a separate report - We’ve reduced file size and complexity by breaking out minimum disclosures into a separate report making it easy for users to pull the data that they need quickly and easily.

A note on excel formulas - 

Unfortunately we will no longer be supporting embedded formulas in our new expense reports. This was a hard trade off we made to bring you locked down expenses, automatic calculations, and many great features in our roadmap. We are committed to providing our clients with highly auditable and clear exports showing our calculations, rigours documentation on our methodology, and a suite of excel tools to help you and your auditors get the most from our reports.

What’s not supported

Our new version only supports expense for options, RSAs, and RSUs at this time. for companies offering other types of equity compensation, these securities will be excluded from your expense reports.

Awards with milestone vesting - These awards cannot be expensed and need to be excluded from any reports. Contact us if you have any questions.

Repriced securities - Currently we cannot provide the incremental expense associated with repricing option grants. If your company has had or plans to have a repricing, please contact us.

Stock splits - Running a stock split on your company is not supported after calculating expenses with our v2 tool. Contact us if your company has been through a stock split or plans to have one in the future.

IFRS reporting - While we can allocate and value awards using IFRS methodology, breaking out securities and reporting by domicile country is not supported at this time on our tool.

Modification accounting - Recording the incremental expenses for amendments is not yet supported. Our team of analysts will be able to provide custom reports to assist with the calculation of your incremental expense. Contact us if you believe your company needs modification accounting.

Upgrading to v2

Version 1 and 2 are not completely compatible, and some reconciliation may be necessary during the migration process. While we’re working to get to 100% feature parity with version 1, the older version will continue to be available. We can also import all your prior expense settings and assist in reconciling any differences when moving to version 2.

Contact 718@carta.com and we’ll help you get set up!