In today’s environment, companies across the globe are subject to a variety of share-based compensation (SBC) reporting requirements. Without expert guidance and support, it can be complex and time-consuming to successfully navigate. Failure to comply with these regulations can result in significant penalties and legal liabilities, as well as potential damage to a company's reputation.
Understand the regulatory environment
The first step to ensuring compliance is to understand the regulatory environment in the region where the company operates. This includes understanding the regulatory bodies that oversee financial reporting, as well as the specific regulations and reporting requirements that apply to the company's industry and business activities.
Understand accounting standards
Companies are required to follow specific accounting standards when preparing financial statements. For example, companies listed in the U.S., that follow U.S. Generally Accepted Accounting Principles (GAAP), would apply ASC 718 to share-based compensation; and if they list in another market such as Hong Kong, that follows International Financial Reporting Standards (IFRS), they would apply IFRS 2 to share-based compensation.
Develop internal controls
Companies should develop and implement internal controls to ensure that financial reporting is accurate, complete, and in compliance with all relevant regulations. This includes establishing processes for the timely and accurate recording of financial transactions, as well as the preparation and review of financial statements.
Hire local experts
Given the complexity of financial reporting regulations in Asia, companies should consider hiring local employee share plan experts that can help companies successfully navigate the complex regulatory environment in multiple languages by providing guidance on compliance requirements and best practices.
Demonstrate the impact on corporate actions
When a company undertakes a corporate action such as: a stock split/consolidation, buy-back, merger, acquisition, or option repricing, it is integral that they can access any incremental fair value that arises and reflect the associated accounting impacts in accordance with relevant accounting guidance.
Maintain accurate records
Accurate record-keeping is critical to ensuring compliance with share-based compensation reporting requirements. Companies should maintain detailed records of all financial transactions, including grants, vesting, exercises, terminations, and expensing groups. This will help to ensure that financial statements are accurate and complete and will also make it easier to respond to audits or regulatory inquiries.
Stay up-to-date on regulatory changes
Regulatory requirements are constantly evolving, so it is important for companies to stay up-to-date on changes to financial reporting regulations. This includes monitoring regulatory updates and changes to accounting standards, as well as attending industry events and conferences where these topics are discussed.
By following these steps, companies can work towards better compliance and transparency in their financial reporting practices.