There are definitely financial reporting and ethical issues present in
what the CEO has asked of his accountant.
If this had been me that the CEO had approached, I would have
looked at the books and verified the dates that construction actually
started as well as any costs that may have been incurred in the
previous year. I would then tell the CEO that because the
construction did not start until June 2016, there is no interest that
can be capitalized in 2015. The GAAP approach is as follows: 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, et al., 2017). In this case, there was only planning
with the architect in the works in 2015. It is unclear if there were
actually costs incurred from the architect, but in any case, that only
means that one of the three conditions have been met to capitalize
interest from 2015 into 2016. The request for me to add lots of
overhead to the cost of the building to increase profits is not a good
idea either. This makes the financial reporting not representationally
faithful. This is because to be comparable, the allocation of overhead
to normal operations should not change because the overhead would
have been incurred whether or not the construction takes place
(Wahlen, et al., 2017). The CEO is in a sense asking me to fudge the
numbers and make the financials look better, when this is not an
appropriate representation of the actual financial position of the
company. The job of me, the accountant, is to ethically and
accurately produce the financials of the company, no matter how
good or bad it makes the company look. What the CEO is asking for
is unethical and could be detrimental to the financial reports that
shareholders review. Making the financials look better not only
makes me look bad, but it brings my own morals into question, makes
me go against the principles of GAAP, and also makes me wonder
who I am working for and why he would want to be dishonest. I
would consider finding a new job at that point!
Wahlen, James M., et al. Intermediate Accounting: Reporting and
Analysis. Cengage Learning, 2017.
