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To: KC Burke
As you appear experienced in the finacial end, help me recall, aren't there IRS standards and GAAP standards that virtually require a switch to percentage complete so that the government gets its prompt tax bite? Could that be what we are seeing here?

Yes, it is. But what is in question here is the recognition of change order work. In construction, a change order authorization is often issued in the field. Usually, they are at cost plus and after the work is performed, an detail of the cost is submitted to the owner or owners representative. The technicality here is that a formal Change Order to the contract is not issued until that point. Previously, apparently, Halliburton was not recognizing the revenue for these changes until after the formal CO was issued and the change order was billed. They changed their method of recognizing the profit on these changes to keep pace with the rest of their revenue recognition. This makes perfect sense because they already had authorization for the change, had performed the work, and were awaiting a piece of paper to say they could bill it. Since most companies that size have written authorizations to proceed, the CO is merely a formality. They began to recognize the percentage of profit on the changes the same way they recognized the profit on the percentage of completion on the original contract. Perfectly acceptable, perfectly safe. Every once in awhile there will be a dispute on the costs, but they are usually minor since the owners representative is usually there onsite as the work progresses. We're talking multi-million dollar contracts here.

39 posted on 07/10/2002 7:44:25 PM PDT by McGavin999
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To: McGavin999
The trigger to that change would be a job cost system in the field PM office that would track the 'proposed' and potential change order costs in sufficient detail to account for the earned revenue but to also not fool yourself by confusing "earned" and billable with Collectible.

I had a buddy who owned a drywall subcontracting firm who, when asked how a particular project was going, would say, "I'll know when I collect the retention."

41 posted on 07/10/2002 8:04:10 PM PDT by KC Burke
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