In the case of this CEO asking to capitalize on the planning that
occurred in 2015, from a financial reporting perspective it would not
be possible. I would respond by informing the CEO that planning
alone is not anything that can be capitalized on. I would present them
with the following reasons: Expenditures for the asset have not yet
begun, activities that are necessary to get the asset ready for its
intended use are not in progress, and interest cost is not being
incurred. Interest capitalization continues as long as the three
conditions are present. a (Wahlen et al., 2017 p.10-4b) For the same
reasons, as well, it would not be possible to gain a " double dose " as
the construction did not start until June 2016. Next, as far as adding
extra overhead it would also not be possible as all overhead has
already been accounted for. If there is any existing unaccounted
overhead then it can be added.
a From an ethical perspective, I would explain to the CEO
that it is imperative to maintain the integrity and accuracy of the
company's financial records. Our stakeholders and future investors
rely on this information for their business decisions. The
capitalization of something that does not exist and the addition of
overhead that does not exist would be discovered in an audit.
Unfortunately, your requests carry legal implications including fraud
and puts the reputation of the company at risk. For these reasons, I
cannot participate in such actions.
Wahlen, James M., et al. Intermediate Accounting: Reporting and
Analysis. Cengage Learning, 2017.
