This case offers great example of the ethical dilemmas 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 as long as 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 actually happen and business incorrectly reported
numbers, such as this example, the economic impact would be huge
and investors would be at a great disadvantage.
Wahlen, James M., et al. Intermediate Accounting: Reporting and
Analysis. Cengage Learning, 2017.
