· ASC 718 Stock Option Expense Report

Similar to how your employee’s salary is a company expense, so too is the value of the equity you issue them. Your accountant can help you determine how to prepare an ASC 718 Report and should review the file you generate in Shoobx before you finalize the company’s financial statements and tax filing(s).

For more information about what an ASC 718 report is and what makes for a good one, read our blog post or read our Practical Guide to ASC 718 for Startups whitepaper for in-depth information about the ASC 718 Report.

At the completion of this workflow, Shoobx will generate a Microsoft Excel file (.xlsx) with ASC 718 report calculations. During this workflow, you will need to have data about grants to employees outside of the Stock Incentive Plan, your company's list of peer companies, and start and end dates for your reporting period. Please select the step in the workflow listed below for a more detailed explanation about what to expect:

• Getting Started
• Previous Expenses
• Peer Companies
• Reporting Start Date
• Fair Market Value
• Confirm Settings
• Reviewing the Report

Getting Started

Please Note: It's important to ensure that your cap table is up to date in Shoobx before you begin this workflow, as the report relies on the grant data in your cap table, including vesting periods and intervals. If you have updates to make and you need guidance on how to go about making those, please reach out to support@shoobx.com so we can help you get up to date.

Before you run the ASC 718 workflow, it is recommended that you establish your ASC 718 settings in your Administration Workspace. Under the Equity Settings heading, you'll find this section, which includes the company's chosen accrual method, reporting span, and more. Here, you will also find prior ASC 718 reports, as well as a list of grants that will be utilized in the ASC 718 workflow. As described in the next section, you can enter prior expenses in the workflow itself, or under the Grant Management tab before kicking off the workflow. 

Enter Previous Expenses

The workflow will begin with the "Check For Previous Expenses" screen, asking if your company has previously expensed equity issuances. In order to maintain consistent reporting, if you select "yes," you will need to input the "Accrual Method" you used previously and will need to utilize this same method in your Shoobx report (in order to maintain consistent reporting).

Please note that, due to ASC/GAAP requirements, once an ASC 718 Report has been created on Shoobx, you will no longer be able to change the Accrual Method for future ASC 718 Reports.

On this screen you'll need to provide:

• Accrual Method (Straight Line or FIN 28)
• Reporting Span (Yearly, Quarterly, Monthly)
• Annual Dividend Rate
• Whether or not you would like to add your own forfeiture rate
• If you'd like to report your expense by cost center

Moving forward in the flow, you will see the grants Shoobx recognizes in your company. You will be asked to enter the amount and date of previous expenses for each grant. If you choose to skip this step, previous expenses will be calculated based on your chosen accrual method. You also have the ability to enter grant-level customizations for each grant. Please confirm with your accountant before making changes to these fields. 

Enter Peer Companies

On this screen, you will be asked to input tickers for your peer companies. Typically these will be the same as the companies that appear on the most recent 409A valuation if one exists. The stock price history of peer companies is required to calculate the volatility of your stock. In order to maintain consistent reporting, enter the same peer companies used in your company's previous ASC 718 Reports.

You can add companies by clicking on the "Add" button and searching for their ticker (for instance, "AAPL" for Apple, Inc.). You'll want to click on the desired company from the drop-down menu and keep adding companies until you have selected all desired peer companies.

Please note that companies should have 10 years of public company data to be used as peer companies. 

Enter Report Start Date

Choose a start date for your ASC 718 Report. The report will cover X months after the start date (depending on your reporting span, specified on the first page of the flow), and cannot overlap with existing reports.

Please note that reports must be generated in chronological order. In other words, you should generate a 2021 report before generating a 2022 report, as these reports build on each other. 

Review Fair Market Value

The Fair Market Value screen of this workflow will require you to review the history of your company's fair market value reports (including the date of the valuation and the valuation price per share). Please add any missing FMV reports on this screen. The Board Consent corresponding to this valuation price per share should also be uploaded.

Confirm Settings

The "Confirm Settings" page will provide an overview of all of the settings you have selected throughout this flow. Moving past this page will produce the ASC 718 Excel spreadsheet.

Once the report has been generated you will receive a link to the report via email or can locate it in the company's data room (click into "Stockholder Information > Equity Valuation Reports > ASC 718"). You are responsible for the accuracy of the data and the calculations contained in the file, and it should be downloaded and reviewed carefully.

Reviewing the Report

• Expense Summary Tab - This is the information that your accountant will need to book each expense (note that, if you have broken out expenses by cost center in the report setup, then there will be an Expense Summary tab for each cost center)
• Disclosure and Configuration Tabs - Shows Aggregate cap table/grant information for the chosen period
• Grants Tab - Column AQ provides the ‘Current Expense’ for each grant
• Expense Allocation - Also by grant, but broken down into individual vesting events or tranches
• Volatility - Calculated from the data on the peers tab, which shows 10 years (or as many as available) of stock price data for the peer companies

Should you have any additional questions about the ASC 718 workflow or report, please reach out to us at support@shoobx.com.