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Case 13-06 Natural Irony: Accounting Considerations When There Is a Natural Disaster

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WetWind Alternatives Corp (WWA) produces electricity through alternative methods such as wave and wind turbines and owns two subsidiaries, Kahuku Wind Inc. and North Shore Wave Electric Inc. (NS Wave), on the north shore of Oahu, HI to utilize the resources of this geographic location in their business venture. Deloitte’s Case 13-06 – “Natural Irony: Accounting Considerations When There Is a Natural Disaster”, discusses a hypothetical scenario where a volcanic eruption causes massive damage to the subsidiaries’ operational assets and poses the question of how to properly record these occurrences in financial statements. The main issue is that Kahuku Wind and NW Wave’s fiscal year end is October 31st so that WWA can have complete financial information for their December 31st consolidated financial statements. If the natural disaster were to happen in mid-December, WWA would need to analyze what steps need to be taken to produce accurate and non-misleading financials by adhering to accounting standards. First let’s discuss whether it is appropriate for WWA to include the subsidiaries’ October 31st financial information on their December 31st statements, regardless of the hypothetical event. According to ASC-810-10-45-12, subsidiary information can be consolidated with parent information if the difference in reporting period is less than three months. WWA’s auditors still wonder if more timely information can be obtained although the October 31st information is in compliance. If WWA were to change the subsidiaries’ fiscal year end it would have to apply the changes retrospectively in accordance of FAS 145, given there is no reason it is impractical to do so. Unfortunately, given Kahuku Wind and NS Wind’s limited accounting personnel and resources, this would violate the cost constraint for WWA and make editing the fiscal year end impractical. To offset this

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