Equity Compensation Valuations Built For Tax Compliance And Financial Reporting.
One Equity Program.
Two Distinct Requirements.
Issuing equity compensation involves more than selecting the number of options or shares to grant. Companies must determine an appropriate fair market value for common stock and accurately measure the compensation expense associated with each award. ASC 718 and IRC 409A address different parts of this process. ASC 718 governs how stock-based compensation awards are valued and recognized in the financial statements. An IRC 409A valuation helps a private company determine the fair market value of its common stock, which is generally used to establish the strike price for stock options. While the two requirements are connected, they are not interchangeable. The company’s capital structure, financing history, preferred shareholder rights, grant terms, vesting conditions, volatility, expected term, and performance conditions may all affect the analysis.
BSMART provides customized valuation support for both requirements. We help companies connect their cap table, award terms, valuation assumptions, accounting obligations, and supporting documentation so that equity compensation decisions are better supported from grant date through financial reporting.
ASC 718 Stock-Based Compensation Valuations
BSMART provides ASC 718 valuation support for stock options, restricted stock, RSUs, performance awards, market-based awards, and other equity compensation arrangements.
We evaluate the specific terms of each award and apply an appropriate valuation model to support compensation expense recognition and financial statement reporting.
- What's Included
- Review of award agreements, grant details, equity plans, and vesting schedules
- Assessment of service, performance, and market-based vesting conditions
- Valuation schedules and supporting documentation for expense recognition
- Development and support of assumptions such as expected volatility, expected term, risk-free interest rate, dividend yield, and forfeitures
- Valuation of stock options, RSUs, restricted stock, performance awards, and modified awards
- Application of Black-Scholes, Monte Carlo simulation, binomial lattice, or other suitable valuation models
- Analysis of award modifications, repricing, or changes in vesting terms
- Assistance with auditor questions, PBC requests, and model clarifications
- Why It Matters
IRC 409A Valuations
BSMART provides independent fair market value valuations of common stock to help private companies establish defensible strike prices before issuing stock options or other equity-linked compensation.
Each valuation is built around the company’s actual business stage, financial outlook, capital structure, financing history, market conditions, and shareholder rights.
- What's Included
- Review of historical financial statements and management projections
- Equity allocation using OPM, PWERM, hybrid, or other suitable methods
- Review of cap tables, recent financing rounds, transaction documents, SAFEs, convertible instruments, and preferred stock terms
- Written valuation report documenting the methodology, assumptions, valuation date, and conclusion
- Analysis of the company’s business model, stage, industry, and risk profile
- Selection of appropriate income, market, or asset-based valuation approaches
- Determination of the fair market value of common stock
- Support for valuation-related questions during board, investor, tax, or audit review
- 409A Safe Harbor Support
- Independent appraisal
- Written valuation documentation
- Reasonable and consistently applied methodology
- Good-faith analysis and supporting evidence
- Qualified valuation expertise
- Current valuation date
- Company-specific facts and circumstances
- Why It Matters
ASC 718 & IRC 409A Serve Different Purposes
ASC 718 is an accounting standard that governs the measurement and recognition of stock-based compensation expense in financial statements. IRC 409A is primarily concerned with determining the fair market value of common stock for tax purposes and establishing an appropriate exercise price for stock options.
A 409A valuation may provide an important input for ASC 718 reporting, but it does not replace the need to value the specific terms and conditions of the equity award.
A Coordinated Process For Tax And Financial Reporting Requirements
Every engagement begins with an understanding of the company’s equity compensation program, upcoming grant activity, reporting timeline, capital structure, and documentation requirements. We then separate the 409A and ASC 718 requirements, identify the relevant inputs for each, and prepare valuation support aligned with the applicable tax or accounting purpose.
Understand The Requirement
We identify the valuation date, expected grant timeline, award types, reporting periods, compliance requirements, and stakeholder expectations.
Review Company And Award Data
We analyze financial statements, projections, cap tables, financing rounds, shareholder rights, equity plans, award agreements, vesting terms, and modification provisions.
Determine The Valuation Approach
For 409A, we select appropriate enterprise valuation and equity allocation methods. For ASC 718, we select the model that best reflects the structure and conditions of the award.
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Develop Key Assumptions
We assess market inputs, company-specific risks, expected volatility, expected term, interest rates, dividend assumptions, performance conditions, and other relevant factors.
Deliver The Valuation Support
You receive documented valuation conclusions, models, assumptions, schedules, and reports aligned with the applicable tax or financial reporting requirement.
Assist During Review
We support valuation-related questions from boards, auditors, investors, finance teams, and other stakeholders.