Business Week .. has a little for all
Despite all the political flak Cheney is taking, Halliburton's shift may actually have improved its bookkeeping. But the timing raises questions: Without the change, Halliburton's already depressed 1998 profits would have fallen far short of Wall Street's targets. And the SEC can't overlook the delay of more than a year before Halliburton told investors that its accounting had changed.
At issue is how Halliburton accounts for cost overruns and changes on its billion-dollar contracts to build such projects as offshore drilling platforms or liquid natural-gas plants. Until 1998, the company wouldn't report revenue from such claims until the customer agreed to pay--which could take years. But since 1998, Halliburton has estimated how much of the disputed costs it expects to collect and booked the not-yet-received payment immediately. For 1998, Halliburton booked $89 million in pretax revenue as unpaid claims. Similar claims added $43 million to revenue in 1999 and $102 million in 2001; there was no impact in 2000.
While it's aggressive, Halliburton's switch is supported by a 1981 accounting rule because it helps meet accountants' goal of matching revenues with associated costs as they occur, says Douglas R. Carmichael, an accounting professor at Baruch College. Ten of the 15 largest construction companies use the method Halliburton adopted in 1998, says Halliburton CFO Douglas L. Foshee.
Halliburton must prove to the SEC that its collection estimates were reasonable. "If it looks like they were just fabricating the numbers, that verges on fraud," says J. Edward Ketz, professor of accounting at Penn State University. Foshee says the company has an "extremely sophisticated model" for estimates and that projections were sound.
HA! Thank you Texasforever! I'll tuck this little article away for future debates :o)