Introduction

This feature is available to users with Growth and Scale subscriptions. If you'd like to upgrade your subscription, please contact your Customer Success Manager.

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 Fidelity Private Shares 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, the platform will generate an 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.

Generating ASC 718 Report

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

It's important to ensure that your cap table is up to date in Fidelity Private Shares before you begin this workflow, as the report relies on the grant data in your cap table, including vesting periods and intervals.

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 new report in order to maintain consistent reporting.

Please note that due to ASC/GAAP requirements, once an ASC 718 Report has been created in Fidelity Private Shares, 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 workflow, you will see the grants the platform 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 Add and searching for their stock ticker. 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 generally, companies should have 10 years of public company data to be used as peer companies. The platform will alert you if your peer companies don't have 10 years of data, but you will not be blocked from proceeding, since many companies won't have that much historical data.

Enter Report Start Date

Choose a start date for your ASC 718 Report. This report will cover the number of months specified by the reporting span you chose at the beginning of the workflow and cannot overlap with existing reports.

Reports must be generated in chronological order, i.e., you should generate a 2021 report before generating a 2022 report, as these reports build on each other.

Review Fair Market Value

This step of this workflow will require you to review the history of your company's Fair Market Value (FMV) 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 step will provide an overview of all of the settings you have selected throughout this workflow. 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 and will be stored in your company's Data Room (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: Listed 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.

Screenshots are for illustrative purposes only.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Fidelity Private Shares LLC provides cap table management and other administrative services to private companies and their equity compensation plans.

Fidelity Private Shares LLC

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