It's really a tempest in a teapot. Companies like Halliburton, which do long term contracts with their customers, make many assumptions on their books. GAAP gives a firm a wide range of latitude for their rationale. However, when a company changes the methodology of its accounting, as Halliburton did in this case, it usually occurs for one of two reasons:
1. The company feels the change better reflects its true finances, or
2. It's playing games with the books..... Also, all companies, to some extent, try to smooth out earnings to avoid violent gyrations. This is done by manipulating the books to some extent, but isn't necessarily bad..
Look, simplistic example..lets say that that each year for the last 10 years, XYZ corp had sales to its one customer of $1,000,000 each year. Nice steady business. Each year it signed a new contract, and everything is OK. However, let's assume that forwhatever reasons, in 5 of those 10 years, there was a short delay in signing the contract with the one customer, because the president of that company went on a cruise every two years, and got back 30 days later, after XYZ had closed its books for the year.....XYZ's books would have then reflected sales of $2 million in years 1,3,5,7,9, and sales of ZERO in years 2,4,6,8,and 10...esentially nothing has changed, yet the financial numbers look all over the place.....
Good example ken. Actually, Halliburton switched to a much more accurate method of accounting (for their industry). More than likely they claimed revenue based on the percentage of completion and now-a-days it's pretty easy to be very, very accurate. The only change they made was recognizing the profit on change orders they were confident they would collect on. Usually, these changes have already been agreed on with the owner (Joe: I want you to make this change. Sam: it's be cost plus. Joe: OK, here's your notice to proceed). Six months later, the paperwork gets processed and an official change order to the contract is issued. Sometimes, the company has already billed for the changes before the paperwork catches up. On big contracts that can take a lot of time since twenty seven gazillion people have to sign off on every single piece of paper. Everyone knows it's going to be billed, and everyone knows it's going to be paid, but the C.O. is still working it's way through the approval process.
This is the most ridiculous thing I have ever seen. I am going to love watching Klayman being publically humiliated. I hope Halliburton countersues.