This sample audit report outlines the results of an internal audit review of a company’s stock option granting activities and process. The key objective of the review was to compare the date used by the company for accounting purposes (the date of record) to the date at which all requisite granting, approval and notification activities occurred (the measurement date).
The following key observations were noted during the review:
- A delayed approval is defined as an approval received from the compensation committee and/or board of directors more than one business day after the grant date.
- The positive and negative changes in the grant values (not always creating “in-the-money” options) indicate a random pattern and do not appear to suggest intentional manipulation of the exercise price to benefit the optionee. Rather, the potential errors appear to be the result of an ineffective option-granting process based on late paperwork, which also resulted in untimely notification to employees.