First of all, I want to state that if I am the accountant at this company, I really
need to reevaluate my position and personally reflect whether my hard work
to obtain my degree justifies me working for this CEO. If the CEO has this
type of thinking in this particular “secluded” situation, what else will he/she
be asking me to do in the future that is unethical and doesn’t abide by GAAP
standards. There are major issues and concerns from a financial reporting
perspective when a CEO is trying to add lots of overhead to the cost of the
building to increase profit for that year is unethical. When the suggestion is
made to add 1/12 of your salary to cost of the building, raises red flags. There
are certain things that can be added which are fixed overhead and variable
overhead to self-constructed assets. This type of asset is built by the
company, and they appear on the balance sheet. The cost included in self-
constructed assets are direct cost such as materials and labor that are strictly
associated with the construction. The total assets would have to exceed the
fair value and be recorded at fair value. The question concerning the
building and when the actual construction started, which was in 2016, does
not allow for 2015 preplanning to be capitalized as interest in year 2015. The
rules of GAAP tell us that the interest can be capitalized on from June 2016
when construction started. Interest is added to the cost of the long-term asset,
so preplanning is not recognized in the current period as an interest expense.
Moving forward it is a fixed asset and is included in the depreciation of the
long-term asset. Even though it initially appears on the balance sheet and is
charged as an expense over the useful life of the asset; the expenditure should
appear on the income statement as depreciation expense and not an interest
expense (Accounting Tools 2019) If I was to report the financial statement
based on the CEOs recommendations, I would not be abiding by the GAAP
and risking my job at a later date.
