From Equity Philosophy to Technical Accounting

A robust compensation philosophy often includes some form of equity compensation. While the standard used to be time-vested stock options or stock appreciation rights, the focus has generally shifted to performance-vested equity vehicles. With this change in focus came a change in valuation methodology to a more complex form, as well as a more complex way of accounting for these equity vehicles in expense on the P&L, reconciliation on the balance sheet, and the inclusion in dilutive common equivalents for earnings per share.

Equity Award Valuation and Financial Reporting Go Hand-in-Hand

Our talented team of actuaries, mathematicians, statisticians, accountants, financial experts and more offers everything a private or public company needs surrounding equity compensation valuation and financial reporting. Whether it’s a simple Black-Scholes valuation or a multi-metric Monte Carlo simulation valuation, standard financial reporting under U.S. GAAP/IFRS 2 or financial reporting for complex Employee Stock Purchase Plans, Aon's Equity Services team has the expertise to support all scenarios.

We’ll help you:  

  • Develop assumptions for option pricing models and Monte Carlo simulation models, including expected life, volatility, correlation coefficients, etc.
  • Estimate various types of changes upon an equity award’s valuation, including absolute total shareholder return caps, value caps, premium options, etc.
  • Use various models, including Black Scholes, Aon Multiple Point Black-Scholes, Binomial, Lattice, Monte Carlo, bespoke valuation models, Employee Stock Purchase Plan valuation models, etc. to value various equity instruments
  • Value complex equity instruments including, but not limited to, profits, interests, warrants, performance awards with interdependent metrics, etc.
  • Integrate the Aon Equity Services team with client’s auditors to provide pain-free valuation services

Support in an Evolving World

Gone are the days that stock options don’t get expensed, or that time-based equity is the go-to standard. The focus on pay-for-performance has introduced increasingly more complex equity award scenarios, and Aon’s Equity Services team is prepared to help you value these under U.S. GAAP, IFRS2, and other international standards.

Our work typically includes:

  • The complete outsourced financial reporting for equity instruments, including Employee Stock Purchase Plans. This can encompass dynamic forfeiture recognition, FIN28/accelerated expense attribution, multiple-subsidiary or location tracking, bespoke summaries and more.
  • The build-up and reconciliation of deferred tax asset for equity awards
  • The calculation of dilutive common equivalents for use in the Diluted Earnings Per Share calculation, both on a quarterly and year-to-date basis
  • The rollforward and reconciliation of all equity instruments for use in Form 10-Q and Form 10-K
  • The calculation of the weighted average assumptions as per Regulation S-K for use in Form 10-K
  • The application and reconciliation of awards subject to liability accounting
  • The reconciliation of a movement from one financial reporting system to another

The Accounting Standard Codification and International Financial Reporting Standards that dictate how equity awards are valued and accounted for are consistently changing, sometimes with multiple updates in a year that impact the financial reporting. Aon’s Equity Services experts are constantly educated on the most up-to-date laws and regulations and are prepared to directly interface with auditors to make the reporting of these awards as seamless as possible.


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