In the NYTimes on May 22, 2002, in an investigative report, certain allegations surfaced concerning Halliburton's accounting treatment of construction job claims and change orders which are negotiated with customers.I'm going to try and search FR archives for this article.Prior to 1998 and the merger with Dresser, the company did not record such items in revenue or accounts receivable before they were resolved with the customer.
The company disclosed in its Form 10-K for 1998 that it had recorded losses on certain engineering and construction projects related to current year claims and change orders which it did not feel would be accepted by customers.
Furthermore, in instances where unapproved claims and change orders were recognized in revenue and accounts receivable, no profits at all were recognized on the related projects.
During 1998, the Company began to record such items in revenue and accounts receivable when the company expected such items to be collectible from the customer.
The company has continued this accounting treatment of similar items since 1998 and has never recorded a profit on a job where an unapproved claim or change order has been recorded in revenue.
Here is the problem, income for a year on a job that takes 5 years to finish must be estimated. How much of the job was finished in any one year ? How much in profits must be realized.