You are the staff accountant for a subsidiary of a company that is constructing an office building for its own use. You are working on closing the books for 2012 (it is currently the month of January).
The CEO of the company stops by your office to chat and says, "I have a couple of questions I need to ask you regarding our office building. Even though we started construction in July of this year, we started planning it, as you know, in January of last year. As a result, I feel that we can capitalize interest since then. I recommend that you check to see if we did capitalize some interest in 2011.
If not, then we can take the interest out of this year's expense and get a double dose. Also, I want you to add a lot of overhead costs to the cost of the building so we will be able to increase our profit for this year. For instance, I know you spent a lot of time yourself on the project. As a result, perhaps we could add 2.5 of your base salary to the cost of the building. You see what I mean?"
How would you reply to the CEO? Are there any ethical or financial reporting issues you need to consider before responding?