Words: 696
The main issue is that Kuaka Wind and NW Wave’s fiscal year end is October 31st so that WWW can have complete financial information for their December 31st consolidated financial statements. If the natural disaster were to happen in mid-December, WWW would need to analyze what steps need to be taken to produce accurate and non-misleading financial by adhering to accounting standards. First let’s discuss whether it is appropriate for WWW to include the subsidiaries’ October 31 SST financial information on their December 31st statements, regardless of the hypothetical event.
According to ASS-810-1 0-45-12, subsidiary information can be consolidated with parent information if the difference in reporting period is less than three months. Ways auditors still wonder if more timely information can be obtained although the October 31st information is in compliance. If WWW were to change the subsidiaries’ fiscal year end it would have to apply the changes retrospectively in accordance of FAST 145, given there is no reason it is impractical to do so.
Unfortunately, given Kuaka Wind and INS Wind’s limited accounting personnel and resources, this would violate the cost instant for WWW and make editing the fiscal year end impractical. To offset this inability to change dates, WWW should consider putting certain policies into effect to supplement the time lapse with current information, especially if it is material. These policies mostly need to involve open communication between the subsidiaries and the parent and can involve something as simple as weekly status reports which would include notification of significant changes or events, if any.
If this hypothetical natural disaster actually did occur, there are certain accounting considerations WWW would have to assess in determining the edits deed on their consolidated financial reports to disclose relevant information, or else they would be material misstated. This disaster would be a subsequent event, according to ASS 855-10-25-1, where the event happens after the balance sheet date of the subsidiaries, but before the financial are issued in the consolidated statements.
WWW would classify this as recognized subsequent event because it occurs before its own balance sheet date. The financial impact will be presented in both the balance sheet and income statement after the damaged assets have been tested for recoverability because in this case here was a significant adverse change in the asset’s physical condition (ASS 360-10-35-21). Since INS Wave’s 9 power generators were destroyed and Kuaka Wind’s 12 wind turbines have irreparable damage, these assets are deemed non recoverable and must be written off as a loss (ASS 360-10-35-17).
Insurance proceeds may offset this loss and whether the assets are insured should be disclosed because a gain from this contingency may arise. ASS 450-30-25-1 states that gains should be recognized when earned which may be a different period than when the loss was recognized. When classifying these financial impacts, WWW would have to determine whether the loss from the event should be treated as an extraordinary item or within ordinary operations. According to ASS 225-20-20 extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence.
Volcano’s are very unpredictable so to gauge their activity you should look at past data. Given that many of the Hawaiian islands have not had any activity in over 20 years, this hypothetical event would be considered infrequent. Unfortunately, this event would not meet the requirements to be considered unusual because of Hawaii’s geographical action and the fact that there are many volcano’s able to become active due to shifting in the earth’s plates.
Since this event does not meet both criteria to be considered an extraordinary event, it must be included under ordinary operations and presented as a separate component of income from continuing operations with sufficient disclosure to enable the users to understand the nature and effects of the item. Within this disclosure WWW must explain the impact of the natural disaster to include the nature of the event, the financial impact and continuity of operations for the subsidiaries.