Essay about Deloitte LabCo

795 Words Nov 3rd, 2013 4 Pages
Date: 19 September 2013
Subject: Halibut Contract

Mr. CFO:

Accounting Method for Halibut Contract
It has recently come to the attention of our audit team that a change in accounting methods has been proposed to LabCo’s contract with Halibut. The current accounting method is percentage-of-completion, while the plan proposed is a switch to the completed contract method. During our investigation into this matter, we analyzed the codification and validation for the percentage-of-completion method, and determined that the proposed change would be an inappropriate course of action.
Justification of Existing Methods
The Financial Accounting Standards Board’s codification helps reinforce our decision to not switch accounting
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When the initial contract with Halibut was drawn up, this extra cost was not anticipated. The extra cost caused a construction impairment of the laser’s progress. At the time the contract was created, the rising cost of steel information was not available. For this reason, the difference is planned cost versus actual cost is not considered to be an error (FASB Statement 154). There is reasonable evidence that suggests that these issues will not happen again. Instead of a change of accounting method, there would need to be a change in the accounting estimate. This change is needed to include the tribulations that occurred during construction. This includes unanticipated extra cost of steel. We have decided that the retrospective applications called for in ASC 250-10-05-2 need not apply. Furthermore, the information from the codification tells us that because there will be a change in the accounting estimate, we will have to account for this estimate (FASB Statement 154).
Accounting for the Estimate
Change in accounting estimate is defined as a revision of an estimate because of new information or of a new experience. Accounting for a new estimate occurs at the end of each accounting period, which is useful for preparing financial statements. Since these facts change from one accounting period to the next, it does not make it feasible to recreate a financial statement each time there is new information. To account for these

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