Mitigating Audit Risk in Valuation: Best Practices in 2013 October 24

Nathan O’Connor – Director of Valuation Services, Equity Methods

Mitigating Audit Risk in Valuation:Best Practices in 2013

October 24, 2013

AgendaThank you for attending the 2013 GEO NECF and this presentation on how to decrease audit risk inthe area of your equity compensation valuations! Some of the topics we will discuss today can get abit technical, so I will try to discuss as many real world cases as possible

I. Introduction: Mitigating Audit Risk in ValuationI. In the Current Regulatory Environment, Auditors are Under Scrutiny Too

II. Audit Risk in Market Award ValuationI. Primer on Valuation of Market AwardsII. Risks with Relative TSR AwardsIII. Key “Gotchas” and Other Issues

III. Stock Option Valuation MishapsI. Unrefined or Improper Expected Term EstimatesII. Development in Peer Volatility TechniquesIII. Improper Development of Other Assumptions

IV. Audit Risk in Modification ValuationsI. Inappropriate Use of the Black‐Scholes formulaII. Advanced Issues

V. Top 10 Questions Every CFO Should Know the Answer to Regarding Equity Comp Valuation

Jan‐94 Jan‐95 Jan‐96 Jan‐97 Jan‐98 Jan‐99 Jan‐00 Jan‐01 Jan‐02 Jan‐03 Jan‐04 Jan‐05 Jan‐06 Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11 Jan‐12 Jan‐13

December 2004• FAS 123R released• Preference for a lattice model

• Significant gaps identified in company valuation methodologies

Equity Comp Valuation – Prehistoric Times to the Present

S&P 500 Index Level

December 1994• FAS 123 released• Nearly all companies elect disclosure‐only

• Valuation approaches significantly unrefined and often do not meet letter of standard

• Almost nonexistent auditor scrutiny

1995 ‐ 2004• Intense lobbying that employee options cannot be reliably valued

• Academic research abounds showing it is possible to reliably measure value

May 2005• SAB 107 released• Preference for a lattice model removed

• Many companies elect to retain Black‐Scholes

2006 ‐ 2008• Research and inquiry by Big 4 and PCAOB lead to substantial focus on expected term estimation

• Key issue: partial life cycle bias

2007 ‐ 2008• Zions develops market‐based valuation mechanism: ESOARS

• Company adoption fails; Black‐Scholesvaluation remains

2012 ‐ 2013• PCAOB places auditors under increased scrutiny

• State of the art continues to evolve

• This presentation’s content!

2009 ‐ 2010• Underwater Option Exchanges popular

• Dodd‐Frank bill passed in to law

• Concern surrounding implications of IFRS 2

March 2011

SAB 114 released

Increased Scrutiny on Valuations…

Custom valuations of complex derivativesecurities have evolved considerably:

Audit scrutiny and rigor of external review began at a high level given the level of risk exposure

The proliferation of such compensation vehicles temporarily reduced this level of scrutiny

However, current practice reflects an intense focus by internal and external parties given the complex and custom nature of such work

Taken as a whole, audit risk in valuationpresents a real concern in 2013 for manypublic companies. The purpose of thispresentation is to outline some bestpractices used to decrease audit risk

The PCAOB is currently in the process of developingmeasures of audit quality that may one day beshared with investors or the general public

In May 2013, the PCAOB re‐proposed amendments(originally proposed in February 2012) to existingauditing standards to require auditors to performprocedures to obtain an understanding of thecompany's financial relationships with its executiveofficers

…Comes from Increased Scrutiny on AuditorsWonder why your auditors seem to focus on thefinest details of your awards? Part of it is becausethey are under scrutiny too... from the PublicCompany Accounting Oversight Board (PCAOB).What’s new at the PCAOB?

“Equity‐based compensation arrangements mayalso provide strong incentives for excessive risk‐taking by executives. Studies have shown thatthese arrangements can position executive officersto benefit from the upside of high risk investments,while largely insulating them from the downsiderisks. In addition, excessive risk taking generally isviewed as one of the contributing factors to therecent financial crisis.

2/28/2012

…The comments we received on the originalproposal were generally supportive of the Board’saction in these areas.

5/7/2013‐‐ Steven B. Harris, PCAOB Member”

The SEC has been very active in the last 12 months on fair value enforcement actions• While recent actions have not been in the area of

equity compensation, several have fallen in the nearby area of private equity valuation

• Auditors know that at any time, the SEC could turn its focus back to equity compensation, where it was in the mid‐2000’s. This is part of the reason auditors hold themselves to high standards when auditing equity compensation

The Emerging Issues Task Force (EITF) of the FASB continues to take up the generation of guidance for complex issues • Several recently resolved or current items on the EITF

agenda pertain to fair value• Most recent pertaining to equity comp is Issue 13‐D.

The EITF met to discuss Issue 13‐D on September 13, 2013, just as this presentation was going to print

• Issue relates to whether certain performance targets on an award should impact its grant date fair value

…and the Broader Regulatory Environment

Audit Risk in Market Award Valuation

GEO National Equity Compensation ForumOctober 24, 2013

Mitigating Audit Risk In ValuationBest Practices in 2013

October 24, 2013

Market Awards are Hot, but Risks Abound

The effects of say‐on‐pay and growing influence of corporate governance groups like Institutional Shareholder Services (ISS) have made it tough for companies to rely exclusively on time‐based awards

• One trend in award design in response has been the adoption of market awards, and in particular relative total shareholder return (relative TSR) programs

• However, implementation of market awards normally means unique challenges for HR and Financial Reporting professionals. Unlike plain vanilla restricted stock, fair values are not equal to the stock price on the date of grant

• To understand the audit risks in valuation of these awards, we need to first understand the complexity of the valuation process

Most audit firms have national valuation practices or valuation experts that will normally become involved in auditing your fair value estimates

• In complex cases, be prepared to give your auditors time to formulate a unified opinion. The more people involved and the more complex the issues, the more opinions that may arise

Mitigating Audit Risk in Valuation – A Few Basic Tips to Start

A good start is to signal to your auditor that you will be engaged in the process from start to end. A couple questions you might consider asking your auditor include:

Will the person who is opining on the accounting treatment of my awards be the same person who will be performing the valuation modeling?

• In some audit firms, one team will comment on how an award should be accounted for, and another will be responsible for opining on how the fair value should be generated

Will the person providing initial approval on a proposed valuation methodology be the one replicating or tying out results produced by my valuation provider?

• Key tip: Request that the audit personnel who participate on initial methodology discussions also stay on the project and be involved in discussions of final results

The more groups involved and the more complex your award design, the more active company management should be in the audit process

– It’s reasonable to ask your valuation provider to provide you with timely, accurate, transparent, robust valuations

– It’s reasonable to ask your valuation provider to provide guidance on, and responses to, questions asked by your auditors

– However, your valuation provider cannot manage your auditor for you, and you would not want them to try. This is something that only management can do

Primer on Valuation of Market AwardsMarket Awards are valued using a technique known as Monte Carlo Simulation. The purpose of a Monte Carlo simulation is to estimate the expected future value (i.e., cost of the instrument) as of the end of the performance period

Conceptually, this involves modeling the many different potential payout outcomes into the future, determining the future payout of the award, discounting it back to the present, and taking an average

• No different from what is being done by Black‐Scholes formula on a plain vanilla stock option• However, on a plain vanilla stock option, only the company’s own stock price needs to be modeled into

the future

The substantive characteristics of market award designs can vary greatly from company to company

‐ One company’s relative S&P 500 relative TSR award could be structured very differently from another company’s relative S&P 500 relative TSR award in several ways

“As stated in Statement 123R, paragraph A8, in order to meet the fair valuemeasurement objective, a company should select a valuation technique or model that(a) is applied in a manner consistent with the fair value measurement objective …, (b)is based on established principles of financial economic theory…, and (c) reflects allsubstantive characteristics of the instrument. ‐‐ SAB 107, pp 13‐14 ”

Relative TSR Awards – A Potential Valuation Minefield A relative TSR award ties the payout on an award to company performance as compared to a group of peer companies. These awards carry a unique set of audit risks with them due to the complexity of the valuation process and the number of moving pieces in the valuation model

Relative TSR Awards are structured to pay out shares in the following way:

The TSR of the Company and its peers is calculated at the end of a performance period

The percentile ranking of the Company’s TSR relative to the TSRs of the peers is calculated

A payoff schedule linking performance percentiles to payoff percentages is used to determine the payoff

(Payoff %) X (Base Shares Granted) = Shares Earned

Where Does the Audit Risk Come From?Many do not fully understand the dimension of the relative TSR award valuation problem. We have many valuation factors to be concerned about, such as:

• The valuation model for a TSR Award where the comparison companies are the constituents of the S&P

500 has 126,502 capital markets inputs, not to mention inputs for other unique features

• The Black‐Scholes formula used for many plain vanilla option valuations, by contrast…. has 6 inputs

With a complex valuation process and many inputs in to the valuation model, auditors have many numbers to tie out, and many questions to ask. Keep in mind:

• Your auditors will likely be building their own valuation model to replicate the fair value generated by your valuation provider

• All of the capital markets inputs that go in to the relative TSR award valuation model will change every day

For Relative TSR Awards where the Company’s TSR is measured against the TSRs of the constituents of an index, a common problem is that the constituents list changes over time:

– Key Question: Is the constituents list an “open” list, so that final performance is based on the list of constituents at the time of actual measurement, or is it a “closed” list (i.e. fixed on the grant date)?

– Make sure the answer to this question is made explicit in your award agreement, or at least that there is a clear policy internally

Key “Gotchas” in Market Award Valuations

SAB 107 directs us to reflect all substantive characteristics of market awards in the valuation model. This means that most Monte Carlo simulation models are custom‐built

Thus, the following “gotchas” frequently pop up in the area of Monte Carlo Valuations. Attention to these will also help mitigate audit risk:

a) Award agreements are incomplete, vaguely worded, or missing altogether at the time of the valuation

b) Award agreements contain highly customized or non‐conventional definitions of standard financial variables

c) Disconnect between “Design” valuations done for planning purposes and Accounting (formal) valuations

d) Improper Reflection of Award Terms in Valuation Model

Market Awards – The Most Complex CasesWhile common “Level I” market award designs (such as relative TSR and price‐vested restricted stock awards) require complex valuation models in and of themselves, ever more complex award designs are increasingly being seen. If not handled properly, these cases may carry substantial audit risk

Level II Complexity Level III Complexity

• Performance options with simplified (non‐data‐based) assumptions– Typically applicable for grants to CEOs or senior execs– Require embedded lattice or Black‐Scholes within Monte

Carlo. Expected Term is often variable and dynamic forward rates are thus required within the model

• Plain Vanilla Warrants– Black‐Scholes cannot be used. Rather, a warrant pricing

formula in conjunction with a numerical valuation technique must be used

• Relative Capital Gains Return Awards

‐ May require input of dividend yields of multiple peers

• Dual Market and Performance Awards where a bifurcated expense policy has been adopted

• Performance options with data‐based assumptions‐ requires analysis of historical option data

• Complex warrants containing down‐round protections, call rights, or other custom provisions

‐ The unique features of these awards which modify strike prices or shares covered by the warrant must be modeled explicitly

• Awards with custom payoff functions

• Awards that require incorporation of data records in to the Monte Carlo simulation itself

• Liability‐classified market awards, or modifications to multiple market awards

‐ Liability awards require periodic revaluation, which can become very complex as awards granted over time begin to overlap

Additional Tips for Market Awards

As discussed above, the valuation of market awards requires, at a minimum, the following assumptions:

Input assumptions used in your Monte Carlo model will not always be the same as input assumptions used to value other equity compensation – this sometimes comes as a surprise!

• Grant Price • Risk‐free Interest Rates

• Volatility • Dividend Yield

• Performance Conditions • Performance Period

A few final tips to help decrease audit risk on market awards:

1. Be sure to give your auditors the same award information you give your valuation provider

2. Work with a valuation provider that performs an internal review of the valuation results before sending to you

3. Review the valuation report, fair value results, and the input assumptions before releasing to your auditors for review


Common Stock Option Valuation Mishaps


October 24, 2013

Unrefined Expected Term – How Can We Improve Our Estimate?

The key valuation questions have evolved – no longer is it sufficient simply to use an expected term model that incorporates outstanding options. New concerns now occupy the spotlight:

Banding Techniques Representational Faithfulness Competing Methodologies

• Employees occupying different HR categories often exhibit distinct exercise / cancellation patterns

• Examples:– Executives vs non‐executives– Insiders vs non‐insiders– Long‐tenured vs short‐tenured

• When such differences are identified, separate assumptions should be developed for each distinct group

• Historical grants may contain terms/conditions that do not faithfully represent present‐day grants– Ex: changes in vesting

• Historical transactions may have been subject to factors not present currently– Ex: cancellation due to a RIF

• It is not appropriate to merely “push” all historical data through a model; data must be analyzed, and where non‐representative, it should be adjusted or excluded

• Not all expected term estimation models are created equal

• Appropriateness of any one model depends on the fact pattern of a case: common “Midpoint Method” is not optimal in all situations

• Other potential estimation methods:– Settlement post vest modeling– Actuarial modeling– Lattice modeling

Equity Methods has found that approximately 6.5% of all publicly‐traded companies use the Simplified Method for expected term. Many of these companies have been public for more than 3 years

Inappropriate Use of SEC Simplified Method (the “Safe Harbor”)

• The standards require companies to transition away from the Simplified Method and to a data‐driven approach when enough settlement data become available

• Most companies should begin using their historical data to derive expected term within 3‐5 years of going public

• Inappropriate use of Simplified Method results in potentially inaccurate and misstated financial statement results

• Companies that have historical data available should have it analyzed to assess:

Data Relevance– Are the available data relevant for consideration in

developing an expected term or forfeiture rate estimate?

Data Sufficiency– Are there enough data points available to form

reliable assumption calculations on?

Does Refinement Matter?

Equity Methods researched this question by selecting at random 28 companies for whom we have at least fourteen years of historical option grant, exercise, and cancellation data

– Some are very mature firms with thirty years of option grant data, and others are younger with only fourteen years of option grant data

4‐year period of post‐IPO grants and settlements

Expected term forecasting horizonASC 718 measurement objective is to estimate exercise behavior over this period

New grant

Estimation Method 1 (SEC Simplified): results in 6.50 year expected term

Estimation Method 2 (Data‐Driven Method): results in 5.40 year expected term

IPO Date1/1/1980

Valuation Date3/15/1984

Expiration Date3/14/1993

Actual realized expected term (as of 3/14/1993) was 4.96 years

IPOWe used the data to calculate the following variables:

– Simplified Method expected term– Data‐Driven expected term– Realized term

We found that there was a statistically significant difference between the expected terms calculated using the SEC Simplified Method and the data‐driven approach

– This implies that companies with four years of data need to consider whether they should transition to a data‐driven technique, since this decision will have a significant impact on their compensation expense

In over 85% of cases, the data‐driven calculation was closer to the actual, realized expected term by an average of approximately 0.7 years

– This implies that, given that the two methodologies have different results, it is likely that a data‐driven approach will result in a more accurate term estimate

But Who Really Cares?

ASC 718 states clear expectations as to the principles and rules that must be adhered to when estimated expected term:

When distinct groups of employees exhibit distinct exercise and cancellation patterns, expected term should be developed separately for each groupASC 718‐10‐55, Paragraphs 33‐34

Historical data should be the starting point and not the ending point – it is not appropriate to merely herd all the data through a calculator without regard to its representational faithfulnessASC 718‐10‐55, Paragraph 24

Methodology matters – reasonable assumptions should be developed based on the specific fact pattern at handASC 718‐10‐55, Paragraph 19

The financial statement cost of failing to apply rigorous expected term estimation techniques can be very large. Our research finds:

Average expected term misestimation as a result of simplified approaches is 1.2 years

Average impact on total award fair value is approximately 10%

AICPA’s professional auditing standards (AU 312) are applicable: even if misstatement is not material in the context of aggregate financial statements, it cannot be ignored

Developments in Peer Volatility MethodologyCompanies that rely on the volatilities of peer companies to formulate their own volatility assumption for insertion in to a valuation model should be aware of the AICPA’s newly released (January 2013) edition of Valuation of Privately‐Held‐Company Equity Securities Issued as Compensation

The guide specifies a technique for developing a volatility estimate for later stage privately held companies that incorporates the effect of the company’s leverage in to the volatility calculation

• This means that peer volatility calculations in 2013 are now more tricky than just getting the ASC 718 peer list right

• We now need to leverage‐adjust peer volatility estimates through a process that incorporates variables such as Total Asset Value, Book Value of Debt, and Total Equity Value

Use of Treasury Constant Maturities as Risk‐Free Rate

Many companies use published treasury constant maturities (TCMs) for their risk free rates. A nuance of the published rates is that they represent Bond‐Equivalent Yields

This means that there is an implied semiannual coupon payment baked into the published rates

While many companies use TCMs as risk‐free rates, some auditors have noted that this is technically not correct

There is no coupon payment involved in discounting a future payment at the risk‐free rate ASC 718 requires use of a zero‐coupon rate

The divergence between bond equivalent yields and zero coupon yields tends to be greater at longer maturities

Note: Not a major issue in our current low interest rate environment, but as interest rates rise, we may see questions related to this pop up again6.70%

6.75%

6.80%

6.85%

6.90%

6.95%

7.00%

7.05%

7.10%

7.15%

7.20%

48 54 60 66 72 78 84 90 96 102 108 114 120

Risk‐free Rate (March 15, 1995)

Months to Maturity

Bond‐Equivalent Yield vs. Zero‐Coupon Yield

Bond‐Equivalent Yield Zero‐Coupon Yield


Audit Risk in Modification Valuations


October 24, 2013

Modification Valuation – What Types Exist

Type I – IV framework – be careful, it doesn’t always apply

Type IProbable‐to‐Probable

• Vesting is probable pre and post modification.

• Compare aggregate FV after modification to FV before modification to compute incremental cost (“Before and After Test”).

Type IIProbable‐to‐Improbable

• Vesting is probable pre modification but not post.

• Apply Before and After Test, but recognize expense as original vesting target would have been achieved.

Type IIIImprobable‐to‐Probable

• Vesting becomes probable post modification.

• Apply Before and After Test, but result is incremental cost equal to FV of modified award (no other cost being accrued).

Type IVImprobable‐to‐Improbable

• Vesting improbable pre modification and remains improbable post modification.

• Apply Before and After Test; recognize expense only if award vests under original or modified vesting schedule.

Aggregate FV at grant

Before and After FV at modification

Avoid Inappropriate Use of the Black‐Scholes Formula

The Black‐Scholes formula should typically not be used to value awards that are deep in‐the‐money or deep out‐of‐the money

• This is the exact situation that often arises in modification valuations• Problem relates to technical limitations of Black‐Scholes, as well as difficulty in forming a reliable expected

term estimate

ExpirationGrant

At‐the‐money

ExpirationGrant

At‐the‐money

Valuation Date

= Valuation date

Value is impacted by option being underwater AND the effect of this on exercise behavior.

Modification Valuation: The Problem with Black‐Scholes

• XYZ modifies an award to allow continued vesting rather than forfeiture upon a retirement (Type III), and thus performs a post‐modification valuation XYZ has the following valuation assumptions:

ABC plugs these numbers into a Black‐Scholes calculator using the remaining term of three years as the expected term, resulting in $23.99

• The intrinsic value of the option is $25, so how can the fair value be less? The answer is that it cannot…but Black‐Scholes will return this flawed result

• There is literally no viable expected term estimate that will result in a value of at least $25 This is an example of the technical shortcomings of Black‐Scholes – lattice models are needed

in many modification cases, and fortunately do not create a precedent to require their ongoing use with plain‐vanilla awards

• Stock price = $60• Strike price = $35• Volatility = 35%• Risk‐free rate = 1%

• Dividend yield = 3%• Remaining term = 3 years• Remaining vest life = 1 month

Modification Valuation: Standard Techniques May BreakTechnical issues with the Black‐Scholes formula aside, there remain pragmatic concerns –e.g., how do you estimate expected term on a modified award?

– For the grant‐date fair value, all options share essentially the same circumstances (e.g., at‐the‐money, ten years to expiration, three year vest) as historical grants

• This is why historical data can be leveraged to develop an expected term– When an award is partway through its life and no longer at‐the‐money, standard expected

term estimation approaches do not work

Regardless of the grant date expected term, there is no “one size fits all” expected term to use as of the modification date

– Scenario A will likely see exercise occur much sooner than Scenario B, while Scenario C might result in a much longer holding period

– A lattice model does not require an expected term to be estimated, but rather “chooses” an expected term based on the circumstances

– Thus, it can alleviate a lot of the headaches and subjectivity caused by the modification valuation

Strike

Stock Price

Scenario A

Scenario B

Scenario C

Grant Date Modification Date

Expiration Date

Auditors Do Detailed Modeling

• Be prepared for the real numbers to differ materially from back of the envelope estimates – if this concerns you, ditch the back of the envelope

• Example: XYZ granted options at $10 in 2008, and their current stock price is $40. Now, they are modifying options for 5 terminating employees to permit a one‐year post‐termination exercise window instead of only 90 days Some rough calculations and determined the incremental cost would be low Since the options are deep in the money and the rough estimates were based on intrinsic value, the

After Value was not much higher than the Before Value

• This missed out on the drastically different effect of the modifications on vested versus unvested options, since unvested options are Type III cases For the Type III cases, a very low grant‐date fair value was reversed and replaced by a much higher

modification‐date fair value (since the options were so valuable) The fact pattern of each case will differ, which is why detailed modeling is key

• We also need to understand: when does the modification become binding? Is the modification being done in contemplation of a specific event, or is it merely a proactive effort to alter the plan for all future cases? “In contemplation of” case: Before Value will likely be significantly different from After Value Proactive and not in response to a specific event: Before and After Value may be identical, if not similar

Modification Valuation – Decreasing Audit Risk

Modifications are not always perfectly intuitive. There are lots of potential traps, and the answers are not immediately obvious unless the unique features of your case are thought through

Your auditors will think your modification through carefully

Everybody will want you to think that the valuation for the transaction will be easy, but the risks can be very large, depending on the number of grants involved. The standards do not always provide clear guidance on how to handle one situation or another. There are areas where reasonable parties can disagree. Thus, it’s important to:

1. Get your auditors on board with your approach early2. Start the valuation process well in advance of the planned modification3. Remember that assumption techniques that worked perfectly in the past may not work now

Don’t skip the step of modeling the financial impact of the modification Dozens of moving parts can result in counter‐intuitive or unexpected results Simple, back‐of‐the‐envelope estimates are often not even directionally correct The timing of the modification can significantly drive the financial impact

Wrap‐Up


October 24, 2013

Top 10 Questions Every CFO Should Know the Answer to Regarding Equity Comp Valuations

1. Are our historical option data relevant and sufficient for developing valuation assumptions?

2. What expected term method is the right one for my company to use?

3. How should our new award characteristics affect our expected term, volatility, and forfeiture rate assumptions?

4. How do our awards' vesting characteristics vary with different optionee pools, and what does this mean for our valuation assumptions? If in theory I need 10 different option groups produced, is there a reasonable way I can reduce the number of groups down to 3 or 4?

5. How do we perform tranche‐level valuations (each with unique assumptions) for the hundreds of grants involved in our upcoming modification program?

6. My award has performance conditions, market conditions, and the dividends paid out are non‐forfeitable. How do we value that? What audit support will I need to get my auditors comfortable?

7. How can we use our thousands of rows of historical option data to generate assumptions like expected term and forfeiture rates? Is it safe for us to rely on canned assumption estimates that are produced by software products such as our system of record?

8. How does the presence of data records associated with reductions in force (RIFs), option exchange programs, and repricings in our historical option data impact our expected term and forfeiture rate calculations?

9. How should we develop the valuation assumptions for the recent modification we made to our senior level employee awards? What is the right way to proceed?

10. Can I sleep tonight when it comes to my equity compensation values?

Those Top 10 Questions…

• Valuation of equity compensation can be daunting and create considerable audit risk if left unchecked. However, it need not create major headaches, provided a plan is in place to identify and manage risks and proactively engage auditors early if appropriate

• Mitigating audit risk in valuation should be a part of the company’s broader financial reporting audit risk mitigation practices and procedures. This should involve an end to end process for acquiring and implementing necessary valuations that is followed each reporting period

• Depending on individual circumstances and whether data must be analyzed, the process of developing robust valuation assumptions for the typical public company can take up to 3 to 5 weeks

When analysis of historical award data is involved, a best practice is to begin the valuation assumption development process several weeks prior to an upcoming grant. This will help leave plenty of time for your auditors to perform their review work as well

• We are happy to discuss any follow up questions you may have. Thank you for attending the presentation!

Gather Information

Discussions w/ Auditors

Valuation Analysis

Financial Reporting

External Audit

Periodic Re‐Assessment

Parting Thoughts ‐ Formulating a Process is Important

Speaker Information

Nathan O’ConnorDirector of Valuation ServicesEquity Methods(480) 428‐[email protected]

Nathan O’Connor is Managing Consultant and Director of Valuation Services at Equity Methods. In his role as the national valuation practice leader, Nathan oversees all client delivery, operations, and R&D in support of more than 200 valuation clients. Nathan also works closely with the Financial Reporting Group and Business Development team at Equity Methods, and is responsible for formulating the firm’s policy positions on all technical topics related to equity compensation valuation. As a Certified Base SAS programmer, Nathan has regularly contributed to the firm’s intellectual property through the design, development, and testing of new valuation models and processes. He also has authored or served as a contributing author to many of Equity Methods’ white papers and industry practice alerts.

Nathan is a nationally recognized speaker at industry events and frequently leads instructional webinars on industry best practices and recent trends in equity compensation valuation. As an expert in the valuation of equity compensation instruments, he has directly consulted senior executives at several Fortune 50 companies and more than 100 companies of all sizes on the compliance requirements of ASC Topic 718. Prior to joining Equity Methods, Nathan trained in the doctoral program in finance at the University of Arizona, where he lectured in investment securities and financial management and actively participated in consulting and research projects. He brings a background of experience in financial analysis, programming, instruction, and data management to Equity Methods. Nathan holds a B.A. in International Relations from Purdue University, an M.B.A. in Derivative Securities from Loyola University Chicago, and an M.S. in Finance from the Eller College of Management at the University of Arizona.

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Mitigating Audit Risk in Valuation: Best Practices in 2013 October 24