Auditing a Publicly Traded Company
Darren Bruneck, Andrew Green, Shalatikka Smith
ACC/541
October 20, 2014
Christine Errico
MEMORANDUM TO: Christine Errico, Manager FROM: Darren Bruneck, Andrew Green, Shalatikka Smith
DATE: October 20, 2014
SUBJECT: Auditing a Publicly Traded Company
The goal of any publicly traded company is to make a profit. Many factors come contribute to the equation to achieve this goal. The most important factor is compliance with the Accounting governing bodies, such as GAAP (Generally Accepted Accounting Principles). As an accounting firm it is essential to review your financial statements for consistency regarding the accounting treatment of share-based payment and accounting consolidation theory as it relates to special purpose entities and consolidations.
Non Compensatory stock options are options that are not meant to compensate employees, but rather to raise capital or increase employee ownership in the company. If the option is non-compensatory then the company would treat them like any other stock sale. These types of options do not generate an expense for the company, so in this respect there is no affect to net income. Non-compensatory options must meet certain qualifications such as time in service, being a full time employee, and the same option must be available to all eligible employees. These types of options also have to be exercised in a specific period.
Compensatory stock options are considered part of the employee’s compensation and are granted as a reward or incentive for the employee’s performance. Compensatory options increase expenses and as a result, lower net income. The expense is documented like the normal pay for the employee. The actual recording of the options is much more complicated than the regular employee’s pay.
