Company: BA
Filing Date: 2025-02-03
Form Type: 10-K
Source: 0000012927-25-000015
Chunk: 156

Company: BOEING CO
Filing Date: 2025-02-03
Form: 10-K
Item: Item 8
Chunk 156
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 data, and management’s judgment regarding the range of possible outcomes relating to the specific cost and estimated customer consideration in the current regulatory environment. 

Program Accounting Estimates for the 737 Program — Refer to Notes 1 and 8 to the financial statements

Critical Audit Matter Description

The Company uses program accounting to compute the cost of sales and gross margin for each commercial airplane program. The process of determining a commercial airplane program’s gross margin involves estimating the future revenue and costs of the program to complete the accounting quantity. The 737 program is experiencing a production environment with increased dependency on external factors, which results in increased complexities and related financial risks. Specifically, the 737 program is experiencing increased oversight from the Federal Aviation Administration (FAA) in approving future production rate increases. The 737 program is also experiencing constraints from the Company’s key suppliers and is currently working with suppliers to ensure they can meet future production rate increases. There is inherent uncertainty in the program’s production rate schedule as the estimate is subject to significant variability in these external factors. Changes to the production schedule due to regulatory requirements or supplier constraints could impact forecasted cost and revenue, with a corresponding impact to the program’s gross margin.

This uncertainty in the production environment enhances the difficulty and complexity of determining the production rate schedule, leading to greater subjectivity in management’s determination of the related cost estimates. Therefore, given the inherent uncertainty of these external factors and significant judgments necessary to estimate the 737 program’s future production rate schedule, auditing these estimates involved extensive audit effort, a high degree of auditor judgment, and required audit professionals with specialized industry experience.

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How the Critical Audit Matter Was Addressed in the Audit 

Our audit procedures related to the production rate schedule used in program accounting estimates for the 737 program included the following, among others: 

•We inquired of those directly involved with the production line to evaluate project status and challenges which may affect the program’s ability to increase production rate.

•We evaluated the Company’s comprehensive product safety and quality plan, including related program metrics, in response to the findings from the FAA Expert Panel Report and Special Audit Item. 

•We assessed the ongoing communications between the FAA and Boeing on the continued implementation of increased product quality and safety measures. 

•We assessed the implementation status of the comprehensive product safety and quality plan to evaluate if there was contradictory evidence that the program would not meet its production rate schedule. 

•We assessed communication between key suppliers and Boeing related to key supplier delivery constraints or quality issues.

•We performed inquiries with multiple members of