Companies with performance conditions must update performance condition expectations every period in order to calculate accurate expenses.
How it works
Market conditions: customers should run an external valuation that simulates all possible outcomes and add this fair value via custom accounting. Performance expectations should be logged for record keeping however these will not affect the expense value.
Non-market (or event) conditions: customers should define expectations each reporting period (consisting of a target date and expectation %) that pro-rates the expense value (e.g. if the expense would normally be €100 but it only has a 50% probability of achievement, the expense will be €50).
Expense balance dates use the most recent expectation when a condition is in progress. Once achieved (or unachieved), the final evaluation data will be used for balances after the evaluation date. Thus, expectations are effectively only used for in progress, non-market conditions.
Expectations can be managed in Financial Reporting > Performance condition expectations:
Click Manage or Setup next to the condition you want to add an expectation for.
Enter the following information:
Expectation date:E The entry date or effective date of the estimation
Target date: The expected finalization date for the event
Expectation: The estimated percentage
Once you've filled in all fields, click Save.
Important notes:
You must set up all events initially, even if entering an estimate of 100%.
After initial setup, you only need to enter a new expectation if it differs from the most recently entered value.
Interim estimates are not visible to stakeholders.
Performance condition data will be displayed in dedicated columns in the report that affect downstream values:
Workflow
Both the core vesting condition and financial reporting expectations have to be managed accordingly.
Core vesting condition:
Create core performance condition
Add the condition to a grant’s vesting schedule
Evaluate the condition when it is officially achieved or unachieved
Financial reporting expectations:
Navigate to financial reporting
Update expectations for performance conditions that are in progress
Generate report period and review numbers