Response to the following problem:
Chief executive officer compensation can be a material amount and is often scrutinized by regulators, analysts, competitors, and investors. For CEOs of publicly traded companies, compensation can consist of salary, bonus, stock option grants, or other stock awards that can be restricted in terms of how long the officers and directors are required to hold the stock. The Proxy Statement for the 2012 Annual Meeting for Goldman Sachs reports the following values for 2011 compensation of the chairman and CEO.
1. Salary of $2,000,000
2. Bonus of $3,000,000
3. Restricted Stock Units with a grant date fair value of $10,710,073. The grant date fair value is determined based on the closing price-per-share of the common stock on the NYSE on the date of the grant and includes a 15% liquidity discount to reflect the transfer restrictions on the common stock.
Required:
a. Provide at least one audit procedure the auditor would perform to test the chairman and CEO's salary. What audit objective is satisfied with this audit procedure?
b. Provide at least one audit procedure the auditor would perform to test the chairman and CEO's bonus. What audit objective is satisfied with this audit procedure?
c. How would the auditor test the fair value of the Restricted Stock Units?
d. Why are the presentation and disclosure-related audit objectives so important for stock-based compensation?