How to customize Financial Reporting assumptions in Carta

Carta has established default financial reporting assumptions based on guidance from the Financial Accounting Standards Board (FASB), Carta's extensive experience with the Big 4 audit firms, and valuable feedback from clients.

It is important to recognize that these assumptions may not suit every company's unique circumstances, so Carta offers the flexibility to create a customized scenario tailored to your company's specific methods and inputs.

What default methods does Carta assume?

Accounting Standard: Carta assumes the use of US Generally Accepted Accounting Principles (GAAP).
Intrinsic Value Method: The default choice is the "Issue Price" method, which calculates expenses by subtracting the stakeholder's share price from the Financial Reporting Value (FRV) at the grant date. This method is used for securities that do not have a strike price (such as RSUs and RSAs).
ASU 2018-07 Valuation Date: Carta recommends assuming a change over date of 01/01/2020 (the deadline for adopting this update) in line with FASB guidance. This update aligns non-employee awards with employee awards for stock-based compensation expense purposes. Additionally, Carta selects “SAB107” for the contractual term calculation on converted grants, consistent with employee grants.
Grant-Date and Mark-to-Market Amortization Methods: Most clients opt for the "Graded straight-line from grant date" method, which accrues expenses from the option grant date per FASB guidance, irrespective of whether the vesting commencement date precedes or follows the grant date.
Forfeiture Rate: Carta applies a 0% forfeiture rate based on ASU 2016-09 guidance ("accounting for forfeitures as they occur"). If a non-zero rate is necessary, Carta applies it dynamically, considering the remaining service period for each tranche.
FRV and Peers: FRVs and peers are extracted from the company’s 409A report.
Naming: These assumptions are referred to as the "Base Assumptions" scenario.

What alternative methods are available?

Grant-Date and Mark-to-Market Amortization Methods:

FIN28 Method (Accelerated Attribution or 'Multiple' Method): This method accelerates the attribution of expenses for each tranche or vesting event, starting on the grant date and ending on the vesting date, front-loading expenses during the service period.
From Grant Date: In cases where the vesting start date precedes the grant date, expenses begin on the grant date and are evenly spread across the service period.

Other Intrinsic Value Method:

Default $0 Intrinsic Value: This assumption presumes that awards are granted to stakeholders without any associated cost. Expenses are calculated by subtracting $0 from the Financial Reporting Value (FRV) at the measurement date.

Additional Selections and Methods:

Forfeiture Rates: Any forfeiture rate that fits your company's specific circumstances can be selected.
Peers: Peer data can be updated.
IFRS: You can choose to apply International Financial Reporting Standards (IFRS).