I found myself in a similar situation when I was at my last job working as an assistant to the
CFO and it is something that is not only unethical but could have legal ramifications if
audited and these things were found.
If I was in this situation, I would let the CEO know that under GAAP, there are rules and
guidelines that need to be followed to ensure our stakeholders are getting the most faithful
and accurate financial reports available so they can make decisions such as investing in the
company or lending money. It would be unethical for me to add part of my salary to the
expense of the building because my salary has been accounted for already. Also, until
expenses are incurred, there is nothing to capitalize on. As far as finding overhead and adding
it to the expenses, if they do indeed tie into the expenses of the building, absolutely but if they
do not, they will not be added to it. You can't pull expenses out of anywhere and just put them
where they benefit you. This goes back to GAAP principles and producing financial reports
that are faithfully represented.
It is important to be socially responsible and truthful to the stakeholders of this company. The
people who have put trust into this company, expect to be able to trust our financial reports. If
we were to ever be audited and these things were to be found, it would make the company
look very bad and we would lose trust in those who do business with us. There would also be
legal ramifications that no one wants to be responsible for.
Accountants have a professional responsibility to report accurate and transparent financial
information. GAAP establishes rules and guidelines to ensure that companies are providing
accurate financial information. Per our conversation, I have found there it be several issues
with your recent requests, as they do not fall within the guidelines that have been established
by the GAAP. d
Since construction of the building did not start until 2016, we are unable to capitalize on any
expenses from 2015, as it was just the planning phase and no interest was incurred. Increasing
the overhead costs of the building and counting my salary as part of the cost will result in
misleading and false financial reports. It would be inappropriate to include a portion of my
salary as part of the construction cost as it was not associated directly to the cost of
construction. Implementing any of your recent requests would not only be unethical but also
illegal.
This case offers great example of the ethical dilemma’s accountants face while in the
profession. In this case, the CEO is asking that the accountant to capitalize the costs of 2015,
even though the project had not started until 2016. They also ask to find any other costs that
they could try to capitalize in the incorrect year. My response to the CEO would include an
explanation of the GAAP on this subject and how these guidelines must be followed on an
ethical and business level. The GAAP states that “the capitalization period begins when 1)
expenditures for the asset have begun, 2) activities that are necessary to get the asset ready for
its intended use are in progress, and 3) interest cost is being incurred. Interest capitalization
continues if the three conditions are present” (Wahlen, 2017). Since only planning happened
in 2015, this does not meet the capitalization requirements. The CEO also asks if there can be
extra overhead costs added to the books. This issue faces a responsibility towards other
companies and investors in good faith that you will report the financials along with the
GAAP. I would explain to the CEO that the overhead costs would have already incurred
regardless of the start of construction and that the GAAP must be followed. The CEOs
requests would greatly affect the financial reports and mislead outside investors/shareholders.
As an accountant, we must hold a higher standard for our work and continue to hold the
ethical principle while in this field. If this situation were to happen and business incorrectly
reported numbers, such as this example, the economic impact would be huge and investors
would be at a great disadvantage.
From a financial reporting perspective, you cannot capitalize any interest during construction.
You can capitalize it as part of the asset after construction, but not prior to completion
(Wahlen, 2017). In this case, it appears the CEO is attempting to capitalize interest in the
middle of construction which clearly cannot occur. Once the construction is done, however,
you may capitalize interest for all funds related to the construction, but the CEO is suggesting
falsifying some figures which is something that cannot occur (Wahlen, 2017).
From an ethical standpoint, the CEO is breaking a code, in a way. There are accounting
standards in place, GAAP, which serve as the guidelines that financial reporting must occur.
By "adding lots of overhead" and attempting to convince an accounting professional to fudge
the numbers, the CEO is violating every single standard and then some. There is a certain way
figures are required to be reported, and the number one thing is obviously correctness.
It may get me in trouble with the CEO and potentially other unethical employees, but I would
try to find someone to report to regarding what I was asked to do. I can also report the CEO to
the Financial Accounting Standards Board and the Securities Exchange Commission, who
oversee enforcing GAAP (Ross, 2021).
Reference List:
Ross. (2021, July 15). Who Enforces GAAP? Investopedia. Retrieved March 8, 2022, from
https://www.investopedia.com/ask/answers/020915/who-enforces-gaap.asp
Wahlen, James M., et al. Intermediate Accounting: Reporting and Analysis. Cengage
Learning, 2017.
