The NASPP Blog

Monthly Archives: March 2010

March 30, 2010

Lessons from the Census

What Can the Census Teach Us About Increasing Response Rates?
A couple of weeks ago, I received a notice in the mail from the US Census Bureau telling me that my census form would arrive in about a week. My first thought was “what a ridiculous waste of money” but, on second thought, I wonder if there is a lesson here that also applies to communications we send to employees.

Advance Notices Increase Response Rates

The Census Bureau believes the advance notices will increase the response rate on the census by 6 to 12%. This is a big deal for the census, since they have go door-to-door to follow up on all forms that aren’t returned (aren’t you glad you don’t have to do this for unreturned grant agreements), resulting in a potential savings of $500 million (at a cost of $85 million).*

So I got to thinking–wouldn’t the same strategy work for the forms employees have to return relating to their participation in company stock plans, such as grant agreements, ESPP enrollment forms, tax election forms for awards, participant surveys, Forms W-8 BEN, broker account applications, etc.? Distributing a notice to employees warning them that these forms are coming and require their response can increase the response rate. This strategy works particularly well for company-wide events–e.g., annual grants, vests dates for annual awards, ESPP enrollment–where many employees must act within the same time period.

Multiple Paths of Attack

You have an added advantage–unlike the Census Bureau, you have multiple ways of reaching employees (the Census Bureau is pretty much limited to direct mail, until they send out the foot soldiers). Some of the ways you might notify employees of the forthcoming grant agreements, etc. might include:

  • Email
  • Letter or postcard mailed to home address
  • Letter or postcard distributed at work
  • Notices in pay stubs
  • Posters displayed around the office
  • Notice (maybe even a pop-up) on the company intranet

Generating a Buzz

Not only did the notice get my attention, but it also generated additional press for the census. Both my local papers ran articles about the notices after readers questioned the cost-benefit of them (and now I’ve mentioned it in this blog). In addition to articles like this, Census Bureau reps were featured on various TV news and talk shows.

The advance notices you send out can create the same buzz, especially in the terrarium-like environment of most workplaces. And you can create your own buzz–perhaps you could be interviewed on the company intranet, in an employee blog, or in an employee newsletter (if your company publishes an internal newsletter) about the importance of employees responding.

Getting Others to Spread the Word

In addition to the Census Bureau’s promotional efforts, I’ve noticed a number of other community organizations publicizing the census, including local schools and the city newsletter.  Just like the census, you don’t have to be the only one spreading the word about your company’s stock programs.  Having executives, managers, and even employees’ peers deliver messages about the stock plan can be a very effective strategy.  The session Robyn Shutak, Rachel Murillo, and I conducted at last year’s NASPP Conference, “Leveraging Your ESPP in a Down Market” includes some great ideas of how you can use managers and peers to promote your stock programs in a structured and controlled manner (if you missed it, you can purchase the session audio and materials).

Don’t Forget the Follow-Up

The week after I received my census form, I received a postcard from the Census Bureau with information on how to get help completing the form. Sending a reminder like this can also increase response rates. Consider using a different format for the reminder; for example, if the advance notices were sent by email, send postcards for the reminders.

Here at the NASPP, response rates to the various programs we offer are directly proportional to the number of emails we send about them. We’ve been sending out weekly emails on our 2010 Domestic Stock Plan Design Survey and, when each email goes out, we see an uptick in participation. The same will be true for your stock programs: the more you communicate with employees about participating, the higher your participation rates will be.

* Letter Sent Before Census Form Saves More Than It Costs,” Kathleen Pender, San Francisco Chronicle, March 12, 2010

Less Than Three Weeks Left to Participate in the Stock Plan Design Survey!
You have less than three weeks left to participate in the NASPP’s 2010 Domestic Stock Plan Design Survey (co-sponsored by Deloitte).  Don’t miss your chance–you have to complete the survey by April 9 to get the results.

18th Annual NASPP Conference
This year’s NASPP Conference will be September 20-23 in Chicago.  Last year’s Conference sold out and we expect even more attendees this year.  Don’t wait to register–early bird discounts are only available until April 15. Don’t count on this date being extended!

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

Go Oakland A’s!

– Barbara 

March 25, 2010

International Developments Impacting Stock Plans

Across the globe, governments are working to improve financial stability, resulting in additional efforts to increase tax revenue. This means that countries are looking to capture incorrectly reported income or insufficient tax remittance and also update the timing or method for income reporting and tax withholding. Equity compensation is often top on the list for countries looking increase tax revenue, which can lead to some pretty drastic changes (think Australia).

Canada 2010 Budget

In case you missed it, Canada’s 2010 Budget proposes changes that will tighten tax rules for stock options. There are two changes that together will have a large impact on the administration of stock option programs in Canada. First, employees will no longer be able to defer income from options exercises to sale date. Rather, income will be realized, reportable and taxed at the exercise. In addition, the “undue hardship” exception for income tax withholding on option exercise income will no longer be available after 2010, meaning the employers will now be required to withhold income tax on option exercises. Stock plan management teams will need to get started as soon as possible establishing new tax withholding procedures and communicating changes to employees. There’s more to the 2010 Budget as it relates to equity compensation. Find out all the details in this alert from Deloitte and make sure you’re signed up to receive updates as they come in.

Ireland 2010 Finance Bill

Prior to the 2010 Finance Bill, employers in Ireland were generally only required to report on the grant and exercise of stock options and ESPP; reporting stock-based awards like restricted stock and RSUs was only required upon notice by the Irish Revenue Commissioners. However, after the 2010 Finance Bill, employers in Ireland must now report on the grant and vesting of all forms of equity compensation including restricted stock and restricted stock units. For companies already reporting both at the request of the Revenue Commissioners, the good news from this Bill is that the forms for reporting equity compensation will be combined to a single form. Reporting is generally due by March 31, but because the composite form isn’t available yet, the filing deadline for 2009 reporting has been extended to July 9, 2010. For more information on the Finance Bill 2010, check out this alerts under the Ireland Country Guide.

Testing UK Residency in the Courts

We’ve also seen a few ground-breaking rulings regarding UK residency. If you have employees on assignment in the UK, these recent rulings mean that now is a good time to take a closer look at the residency status of mobile employees working in the UK or who have left the UK on assignment. The HMRC is in the process of reviewing residency claims. With these rulings (from litigation that is the product of the HMRC’s efforts), some existing assumptions about claiming non-resident status in the UK have been challenged. Residency has never been a concrete idea in the UK. Although there are definite and obvious lines that disqualify employees from claiming non-resident status, there is still a significant amount of grey area. When reviewing residency, the HMRC takes all facts and circumstances into account, which means that companies determining how to withhold and report must also assess each mobile employee individually.

For employees leaving the UK to work abroad, the most significant implication of two recent rulings is that it will be more of a challenge to claim non-resident status if there isn’t a clear break with social or family ties in the UK. For employees on assignment to the UK, one recent ruling implies that when reviewing cases where the status of resident and not ordinarily residence (see my prior entry on UK mobile employee vocabulary), the original intent of the individual can be trumped by the actual outcome of the assignment. You can find more on these recent rulings in the alerts under the UK Country Chapter Guide.

Keep Up!

Have you been keeping up with international developments? There’s a lot on the move these days, and to stay ahead of the curve, you need to know what’s going on. The NASPP Global Stock Plans portal taps into resources from all of our Task Force members to provide you the latest alerts on global legislation, litigation, and other changes that impact equity compensation. If you’re not already on the list to receive global alerts by e-mail, sign up now!


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March 23, 2010

Will RiskMetrics Red Light Your Stock Compensation?

New RiskMetrics Rating System Highlights Compensation Practices
RiskMetrics introduced a new system to rate public companies in four key areas of corporate governance:

  • Audit
  • Board structure
  • Compensation
  • Shareholder rights

Governance Risk Indicators (GRId) uses color coding to indicate how companies score in each of the above areas: green for low concern, yellow for medium concern, and red for high concern.

The new measure will replace the Corporate Governance Quotient (CGQ) rating, which provided a single overall rating. By separately rating the four areas listed above, RiskMetrics focuses more attention on each. Thus, companies with poor compensation practices may not be able to fully compensate (sorry for the pun, but I can’t think of a more appropriate word) with excellent practices in the other three areas.

Certain stock compensation practices, such as repricing without shareholder approval or issuing mega grants are likely to impact a company’s compensation rating. If you haven’t done so already, now might be a good time to review how your stock compensation programs stack up under RiskMetrics analysis; you don’t want compensation to be the only red rating in an otherwise perfect score!

For more information on GRId, see RiskMetrics’ announcement and FAQ for issuers or read memos from Compensia and Choate Hall & Stewart.

Less Than Three Weeks Left to Participate in the Stock Plan Design Survey!
You have less than three weeks left to participate in the NASPP’s 2010 Domestic Stock Plan Design Survey (co-sponsored by Deloitte).  Don’t miss your chance–you have to complete the survey by April 9 to get the results.

The winner of last week’s survey raffle is Martin Cannon of Paychex, who receives a $50 gift certificate.  Complete the survey today to be included in next week’s raffle (and qualify to receive 10% off the NASPP Conference and NASPP membership).

18th Annual NASPP Conference
This year’s NASPP Conference will be September 20-23 in Chicago.  Last year’s Conference sold out and we expect even more attendees this year.  Don’t wait to register–early bird discounts are only available until April 15.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 


March 18, 2010

Top Five “Newbie” Traps

We’ve seen it so many times; the result of a “trial by fire” job. What happens when an intelligent, dedicated, hard-working person gets thrown into stock plan management with only minimal experience and knowledge? “Newbie” mistakes, that’s what. Fortunately for those of you starting your career in equity compensation now, there are many incredible resources to beef up your knowledge while you gain experience. There’s no need to face the challenges of equity compensation unprepared! To give you a little boost, these are my top five newbie traps:

  1. Not knowing how accounting rules impact your stock plans.
  2. If a stock plan administrator doesn’t fully understand how accounting rules impact stock plans, there is the risk that essential reports will be run incorrectly resulting in errors that could be minor enough to cause confusion and waste time or serious enough to require a financial reporting restatement. For example, the stock plan administrator may accidently run an expense report under APB 25 rules or may value options granted to a consultant using an expected term based on historical data rather than using the remaining contractual term. You can find all our accounting resources consolidated on our Stock Plan Expensing portal.

  3. Not knowing tax rules
  4. This newbie trap is particularly dangerous for the stock plan administrator who feels seasoned, but is now faced with a new equity vehicle or situation. The best example of this is the stock plan administrator who doesn’t know to coordinate with payroll to ensure timely tax withholding deposits when the total liability is over $100,000 or doesn’t realize that the three-day settlement grace period for deposits doesn’t apply to restricted stock. If you have questions on tax rules, check out our Tax Withholding and Reporting portal.

  5. Assuming that existing procedures align with best practices
  6. Just because there are well-documented procedures, doesn’t mean that those procedures are correct and consistent with best practices. An inexperienced stock plan administrator may permit questionable grant practices like creating an option record for a grant that was inadvertently left out the formal approval process or correcting errors without proper approval and documentation. Or, the stock plan administrator may not follow through on transactions to make sure that all steps have been taken (shares are deposited, taxes collected) because the procedures don’t require it.

  7. Not recognizing the key data
  8. Without a full understanding of how stock plan data is used, it’s easy for a new stock plan administrator to run a report with an incorrect filter, enter incorrect data, or neglect to catch errors while they are still correctable. Also, not knowing what the key data is means that the stock plan administrator won’t know which data points to double check, such as the FMV for an ESPP purchase.

  9. Not keeping up with professional development
  10. Ok, so this one counts for everyone, not just you newbies out there. It’s easy to feel so busy just doing the day-to-day work that you don’t have time to read newsletters and alerts. For new stock plan administrators it may not seem important to set time aside to keep up with changes while still learning the basic information, but it is. Setting time aside to read newsletters like the Stock Plan Advisor (the March-April edition went out on Wednesday), read e-mail alerts, attend a chapter meeting or webcast, or review Legislative Alerts on the NASPP homepage doesn’t have to be a major production, but it can have a major impact if the stock plan administrator is just “too busy” and misses new legislation that impacts equity compensation.

    Stock Plan Fundamentals

    If you are new to equity compensation, we’ve got just what you need to build a solid foundation. Get in on the valuable resources, quizzes, and exclusive discussion forum available through the NASPP’s online Stock Plan Fundamentals program. It’s like a six-week boot camp for equity compensation professionals! Register now because the early bird rate ends tomorrow–the deadline has already been extended once, it won’t be extended again. If you’re an experienced administrator, but you know people who are new to the industry, be a hero and forward this blog to them!


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March 16, 2010

Discounted Stock Options: Inherently Evil or Smart Strategy?

The media and regulators seem to have a bias against discounted stock options over full value awards that I’ve never completely understood. I can understand a preference for at-the-money options over discounted options, but why would allowing employees to purchase stock at a discount somehow be worse than giving them the stock at no cost?

A recent article, “The Non-Option: Understanding the Dearth of Discounted Employee Stock Options” authored by Professor David Walker of Boston University, considers this question.

Economically Efficient Compensation

Under ASC 718 (FAS 123(R), as most of you know it), discounted stock options are more efficient than at-the-money options. This is because the discount often isn’t a dollar-for-dollar increase in the fair value of the option. For example, assume an option is granted when the market value is $25 per share. If at-the-money, the option has a Black-Scholes value of about $11.50 per share (assuming a 5-year expected life, 50% volatility, no dividends, and an interest rate of 2.5%). If the option is granted with an exercise price of $20 per share, the Black-Scholes value increases to about $13 per share. This is an increase of $1.50 in compensation cost for delivering an additional $5 compensation to employees.

Add in the fact that employees’ perception of the value of the option probably increases disproportionately with the discount, just as employees have a disproportionately large perceived value of full value awards, and you’re looking at a bargain in terms of compensation.

In fact, as FAS 123(R) went into effect, I was anticipating writing lots of great articles on why companies should be granting discounted stock options. But Section 409A put the kibosh on that. I still secretly hope to come up with a viable design–maybe discounted options with a fixed payout date or that are automatically exercised at vest–but I also secretly hope be interviewed on The Daily Show about my book “Accounting for Stock Compensation” and I think that has just about as a good a chance of happening.

Uncle Sam’s Perspective

The article dismisses a number of reasons for the bias against discounted stock options but ultimately points to tax revenue as the most compelling justification for regulators to discourage/prohibit discounted options. For the most part, full value awards are taxed at vest, whereas discounted stock options aren’t taxed until exercise. This locks in tax revenue on full value awards that might never be realized on discounted stock options (of course, by deferring taxation, there is the possibility of increased tax revenue, but that’s a matter of capital gains vs. ordinary income tax rates–better to lock in ordinary income tax at vest and then collect at a lower tax rate on the additional appreciation than to wait and potentially not collect any tax at all). Walker argues that preventing companies from granting discounted options prevents them from using steeply discounted options to get around the taxation that would normally apply to full value awards.

Synthetic Discounted Options

Walker points out that many companies are in effect granting discounted options by granting a combination of at-the-money options and full value awards. Going back to my earlier example, let’s say a company wanted to accomplish the objective of granting 1,000 shares at discount of $5 per share. The company could grant options to purchase 800 shares at a price of $25 per share along with restricted stock units for another 200 shares at no cost. The end result is that the employee is able to acquire 1,000 shares at a price of $20,000 and these shares have an aggregate value of $25,000 when granted, an average discount of $5 per share.

But, the accounting doesn’t work out so efficiently. Let’s compare:

  • The expense for at-the-money options to purchase 1,000 shares would be $11,500.
  • The expense for options to purchase 1,000 shares at a $5 per share discount would be $13,000. This is an increase in expense of about $1.50 per share to deliver an additional $5 in compensation.
  • The expense for the option/RSU combo would be $14,200 ($11.50 per share for the options to purchase 800 shares plus $25 per share for the 200 restricted stock units). This is an increase of about $2.70 per share to deliver the same additional $5 in compensation; still a good deal but not as good as granting discounted options.

More to Consider

The article has some interesting commentary on discounted options vs. at-the-money options vs. full value awards, NQSOs vs. ISOs, and the efficiency of using a combination of options and awards to achieve the same end as discounted options–definitely worth a read.

We Have a Winner!
The winner of this week’s survey raffle is Jane Landsman of Starwood Hotels & Resorts Worldwide. We’ll hold another raffle this week–increase your odds of winning the raffle by completing the NASPP’s 2010 Domestic Stock Plan Design and Administration Survey (co-sponsored by Deloitte) this week–before the last minute rush!

Don’t forget–you have to participate in the survey to get the results.

18th Annual NASPP Conference Announced
This year’s NASPP Conference will be September 20-23 in Chicago.  Last year’s Conference sold out and we expect even more attendees this year.  Don’t wait to register–early bird discounts are only available until April 15.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 


March 11, 2010

2010 Domestic Stock Plan Design Survey

We’ve just launched the 2010 Domestic Stock Plan Design Survey, which is co-sponsored by Deloitte. Don’t miss your chance to participate in this exceptional survey–by far the industry’s most comprehensive and longest-running. I see lots of questions posted in the NASPP Discussion Forum about common design and administration questions and almost all of them are answered by this survey.

Top Five Reasons Why You Should Participate in the Survey

  • To get the survey results! We’ve implemented a new policy this year–the full survey results will only be released to survey participants. (Service providers that aren’t eligible to participate can contact Danyle Anderson, the NASPP Programs Director, to find out how to qualify for a complimentary copy of the results.)
  • It’s easier than last time! We’ve cut the survey back to half the size of the prior survey, which means you can complete it in a lot less time.
  • We have a snazzy new survey tool! Courtesy of the CEP Institute at Santa Clara University, we have a cool new tool to collect your responses.  This will make it easier for you to save your answers and return to complete the survey later and have others in your company assist you with the survey.
  • Discounts on the NASPP Conference and NASPP membership! Respondents to the survey qualify for a 10% discount on NASPP Conference registration and NASPP membership.
  • Win cool prizes! All respondents that complete the survey during each week throughout the survey period will be entered into a raffle to win a $50 gift certificate.

Don’t wait–increase your odds of winning the weekly raffle by completing the survey early–before the last minute rush!

Trends That I’m Most Excited to See New Data On
Here are some of the trends we reported in the last survey (the 2007 Domestic Stock Plan Design and Administration Survey) that I’m most interested in seeing new data on.

  • Performance Awards: The 2007 edition of the survey saw a surge in usage of performance awards–64% of respondents, up from 30% in the 2004 survey. My sense, however, is that this is just the tip of the iceberg in terms of this trend. Will this edition of the survey reveal that usage of performance-based plans has begun to catch up with usage of service-based full value awards?
  • Appreciation Only vs. Full Value: Appreciation-only vehicles, like stock options and SARs, were still the predominant vehicle for stock compensation in the last survey, with 96% of respondents offering them. But, usage of full value awards, i.e., RS/RSUs, increased significantly–87% of respondents, up from 52% in the 2004 survey. Will usage of RS/RSUs catch up to stock options/SARs or has this trend leveled off?
  • Flexible Share Reserves: Given the predominance of omnibus plans (89% of respondents in the 2007 survey) and challenges with the RiskMetrics SVT analysis for these plans, I was surprised that only 15% of respondents had a flexible share reserve. Will this feature be more common now?
  • Clawback Provisions: We’ve revised this edition of the survey to provide better information on the use of clawback provisions. Given current regulator and investor bias for these provisions, it will be interesting to see where practices come out on this.
  • Net Exercise: When the last survey was conducted, we were just at the beginning of this trend. We hope to see a significant upswing in the usage of net exercises in this survey.
  • Acceleration of Vesting Upon Retirement: Given all the consternation about the tax and accounting ramifications of accelerating vesting on retirement, I was surprised to find that, in the 2007 survey, only 22% of respondents provided this treatment for RS/RSUs for normal retirement and only 10% for early retirement. I expected the numbers to be much higher considering all the questions I answer about it. Have practices changed in this area?

Let’s make this interesting–10 points for each of the above trends that you can accurately predict!

18th Annual NASPP Conference Announced
This year’s NASPP Conference will be September 20-23 in Chicago.  Last year’s Conference sold out and we expect even more attendees this year.  Don’t wait to register–early bird discounts are only available until April 15.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 


March 9, 2010

Get in Style

You probably don’t need me to tell you that style inconsistencies in a document make it look unprofessional. But as we move towards the end of proxy season, I’m reminded that style inconsistencies in proxy statements are abundant and frequently occur. Common instances of this include inconsistent references to the company’s stock plans i.e., referring to the 2010 Stock Incentive Plan as “the 2010 Stock Plan” and other times referring to it as “the Stock Incentive Plan.” Another area where these inconsistencies can often be found is in the director biographies. For example: 

Director One: “Mr. Smith holds a B.A. from Rutgers University and an M.B.A. from Harvard Business School.”

Director Two: “Ms. White holds a masters degree in Business from the University of Chicago, Graduate School of Business and a B.S. from Ursinus College.”


Director One: “Mr. Smith holds a B.A. from Rutgers University and an M.B.A. from Harvard Business School.”

Director Two: “Ms. White holds a B.S. from Ursinus College and an M.B.A. from the University of Chicago, Graduate School of Business.”

So, as you near the end of your proxy drafting process, one of your final reviews of the document should be to look for consistency in style; pick a style and stick with it throughout your document. Doing so will improve the quality of your document, as it will be more clear, precise and look more professional.


March 4, 2010

NASPP Conference Announced

This week I have a grab bag of announcements for you, including the date and location of this year’s NASPP Conference, why the UK tax year ends on April 6, changes in store for our friends at RiskMetrics, and the CEP exam.

NASPP Conference Announced!
The 18th Annual NASPP Conference will be held from September 20-23 in my hometown of Chicago. I know you all saw the picture of me with my snow pile from last December but don’t worry, it hardly ever snows in Chicago in September.

Pre-conference programs will be held on September 20. New this year, we are offering an intensive one-day course of performance-based awards; I’m not aware of any other offerings like this and this may be the only time we offer it, so don’t miss it. The 5th Annual Proxy Disclosure Conference will also be held on September 20.

The NASPP Conference will begin in the evening of September 20 with the opening reception. Sessions will begin on September 21; the 7th Annual Executive Compensation Conference will be held on that day as well. The Conference will close with a half-day of sessions on September 23.

We are offering a $300 early-bird discount if you register by April 15–don’t delay; you don’t want to be rushing to mail your tax return and submit your Conference registration all at the same time.

My Last Word on UK Taxes
Mark Miller of Deloitte tells me that the reason the UK tax year ends on April 6 has something to do with England changing from the Gregorian calendar to the Roman calendar back in the day and not wanting to lose tax revenue. Now you know.

Mark also said that he is seeing increased interest in UK tax-qualified plans and passed along a handy summary of how these plans work, which we’ve posted in the NASPP’s Global Stock Plans Portal.

RiskMetrics Acquired, Again
RiskMetrics, formerly ISS, will be acquired by MSCI, a global provider of investment decision support tools. Broc Romanek, of blogged about the announcement on Tuesday, noting that this is the fourth sale of ISS/RiskMetrics in this decade. I don’t remember the last sale of ISS having a significant impact on their corporate governance policies and I don’t expect that this one will have that much of an impact either, but who knows. I wonder if they’ll have to change their name again, now that we’ve all finally gotten used to the RiskMetrics moniker.

NASPP Members Eligible for Discount on CEP Exam
If you’ve been thinking about enrolling for the Certified Equity Professional exam, now is the time to do it. Because the NASPP serves on the CEP Institute Advisory Board, we are able to offer NASPP members a $200 discount on the June 5, 2010 exam.*

The CEP program is the certification standard for the equity compensation industry, comprised of a three-level, self study program in the technical regulatory issues affecting equity compensation. I completed the program in 1995 and it has been one of the cornerstones of my education in the field of equity compensation.

Visit the CEPI website for more information on the program. To take advantage of the NASPP member discount, contact the CEPI at (408) 554-2187.

* The Fine Print: Eligible registrations include new Level 1, Level 2 or Level 3 registrations for individuals who are involved in administering or managing their own company’s equity programs. Deferrals and re-tests are not eligible for a discount. Individuals already registered are not eligible for a retroactive discount. Candidates from service providers do not qualify. Questions regarding eligibility can be directed to the CEPI at (408) 554-2187.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 


March 2, 2010

SEC Addresses IFRS Adoption Concerns

The SEC released a Statement last Wednesday addressing many of the concerns raised during the comments period for the proposed Roadmap for transitioning U.S. issuers to a high-quality global accounting standard, presumably IFRS. Although the SEC confirmed its commitment to an impending convergence and adoption of a single set of global accounting standards, the SEC really appears to have taken a serious look at the potential impediments to adopting IFRS as a single global accounting standard.

More Time

In the 2008 proposed Roadmap, the SEC set 2011 as the date when a determination will be made on the viability of adopting IFRS for U.S. issuers; and last week’s Statement keeps 2011 as the target date for that determination. What has changed is that the original Roadmap would have required, should the 2011 determination be made if favor of transition, the adoption of IFRS starting in 2014. This date is pushed out to 2015 as the earliest adoption date (pending the determination).

Preparing for a Determination

The milestones set by the proposed Roadmap are still in place as a baseline requirement for the SEC to make its 2011 determination. In addition, the SEC Statement stresses that convergence between FASB and IFRS will be an essential step in preparing for a determination. What this new Statement expands on is additional preparation by way of a Work Plan designed to position the SEC to make a solid determination. This Work Plan clearly reflects the SECs commitment to addressing concerns raised in the comments on the Roadmap. The Work Plan delves into analyzing the viability of IFRS as a high-quality global accounting standard and also evaluating the potential benefits and costs associated with U.S. adoption. Specifically, through the Work Plan, SEC staff will strive to:

  • Determine if IFRS is sufficiently developed and consistently applied;
  • Ensure that global accounting standards are independently set and are for the benefit of investors;
  • Provide investor understanding and education on IFRS;
  • Examine how a change in accounting standards will impact U.S. regulatory environment;
  • Determine full impact on issuers (both large and small);
  • Establish the readiness of U.S. financial statement preparers and auditors to make the conversion to IFRS.


Although concerns over the viability of IFRS adoption in the U.S. are still prevalent, there is a general consensus that an international accounting standard is desirable, even inevitable. The Work Plan outlined in the SEC’s Statement was well-received, even if there are still major roadblocks to be overcome. There’s a lot to be done before next year’s determination is made to get not only the SEC, but also U.S. issuers and investors ready!

In a prepared speech, SEC Commissioner Luis A. Aguilar expressed some concerns around IFRS, including potential discretion afforded to financial statement preparers under IFRS, the ability to audit and enforce IFRS-based accounting standards, and whether or not adopting IFRS is ultimately in the best interest of investors.

The AICPA issued a statement supporting the move to a global accounting standard, but also urging the SEC to provide a certain date for IFRS adoption.

In a press release, CAQ Director Cindy Fornelli expressed her support and commitment to work with the SEC on carrying out the Work Plan.

FEI issued a statement applauding the SEC for developing the Work Plan.

More Information on IFRS

Although the SEC isn’t ready to say for certain if IFRS will ultimately be the “high-quality global accounting standard” that both the Roadmap and the Statement call for, it is certain that continued convergence between U.S. GAAP and IFRS will be ongoing. In addition, U.S. companies with overseas subsidiaries may need to adopt IFRS before any general transition, at least for the subsidiary. If you want to learn more about IFRS, check out our recorded webcast, “The Race to IFRS-Don’t be Left Behind”, the “IFRS–A Lesson in Implementation” session materials from our 2009 Conference (under Accounting, Auditing and Controls), and Deloitte’s guide to IFRS posted to our Document Library.


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