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Massachusetts Progressive Politics and other news of the world

 

Understanding Halliburton Overcharges


When Halliburton overcharged for gas in Iraq, it didn't need to actually collect the money to benefit, and in fact may have fully expected the overcharge to be caught and corrected. To understand why, we need to revisit the SEC allegations from 2002
The New York Times published an article Wednesday highlighting a change in Dallas-based Halliburton's accounting policies and quoting accounting specialists who said the change stretched -- and may even have broken -- accounting rules.

Under the change, implemented by Halliburton in the late 1990s, the company began to recognize some of its unresolved claims against engineering and construction clients as revenue, even though the amounts of money at stake were disputed.
One of the effects of overstating revenue is to temporarily drive up the stock price. This will benefit stockholders with inside knowledge (i.e. upper management) even if the revenue is never collected. That is, there is incentive to overcharge and book revenue even if you expect never to collect on it. Minor investors (e.g. your grandmother) won't be privy to the fact that the revenue is overstated and will not benefit.

So, when the President says he expects Halliburton to pay back overcharges, he may sound tough, but he is not addressing the consequences of their behavior.