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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: bonnuss_in_austin who wrote (277246)	7/17/2002 11:39:07 PM
From: puborectalis	Read Replies (1) \| Respond to of 769667

Bush, Cheney have some explaining to do By Scott Herhold Mercury News George Bush and Dick Cheney want American CEOs to vouch personally for the accuracy of financial statements. Fine. Let's begin at home. Let's ask for a fuller accounting of what happened in their companies. This much is clear: Both men come from cultures that pushed the envelope of accounting standards. Neither can claim a bully pulpit. In fact, they'd have trouble claiming a broken soapbox. After looking at the two cases, I'm persuaded that the accounting issues at Halliburton (HAL), the Texas conglomerate Cheney headed in the late '90s, are more serious -- if only because they're more recent. Bush's actions at Harken Energy -- which surround the sale of stock before the company reported a big loss -- raise questions, too. But the case has the flavor of a well-chewed, if tacky, piece of gum. Take the case of Halliburton first, which the SEC is currently investigating. The basic charge is that Halliburton changed its accounting methods in late 1998 for revenue on construction projects -- and didn't quite come clean about it. Halliburton generally worked on ``fixed-cost'' basis, meaning it had bid lowest or negotiated a price for a project. Its contracts typically allowed change orders -- or cost overruns -- that increased the cost. At the end of 1998, Halliburton, which was audited by Arthur Andersen, adopted a more aggressive accounting method. It decided to book the revenue from change orders even before the customers had finally approved them. That move allowed it to book an extra $89 million of revenue in the fourth quarter of 1998. Accounting principles allow this as long as revenue can be reliably estimated. The problem was that Halliburton didn't immediately explain the change. In fact, it didn't disclose the new method until its annual report for 1999 was filed in March 2000. Even then, it didn't spell out the change clearly. That matters because it can give investors the impression that the company was doing better compared with past years. The questions for Cheney: What role did you have in changing the accounting standard? Why wasn't it immediately disclosed to investors? And just how reliable was that income? In Bush's case, it's worth peeling back the layers of his actions while a director of Harken. Leave aside the fact that Bush got two low-interest loans from Harken to buy its stock -- the same kinds of insider transactions he now wants outlawed. He also faces questions around the sale of 212,000 shares of stock on June 22, 1990, for $4 a share, shortly before the Texas company ended a disastrous quarter. Bush has been criticized for not filing a timely report about the sale. That's the least of his problems. He did file a notification of his intent to sell. He just didn't complete the paperwork to confirm the sale, a relatively common transgression. The sale itself has a few more problems. In its investigation, the SEC concluded that while Bush knew generally about Harken's problems, he was not guilty of any wrongdoing. Still, considering that the stock was at $1 by year's end, the sale has a slight lingering odor. The most troublesome piece of the Harken saga was the company's decision in 1989 to play a little dance with its books. The company sold 80 percent of a subsidiary, Aloha Petroleum, to a partnership that consisted of Harken executives. It booked that sale as revenue. The Harken insiders, however, funded the purchase largely through a loan from the company. Eventually, the SEC forced Harken to restate its books to show a $12.6 million loss, far larger than the company had originally reported. ``Part of accounting requires that transactions be reflected in financial statements based on their economic substance, not just their legal form,'' says Andy Mintzer, a Southern California accountant familiar with these issues. ``It sounds like there wasn't a substance to that sale.'' Bush wasn't part of that insider group -- though he was on Harken's audit committee. When he was asked about this the other day, he said that accounting was not always black and white, that there were disagreements between the auditors. In trying to seize the mantle of moral chieftain, he must do better than this. A lot better. -------------------------------------------------------------------------------- Scott Herhold's Stocks.comment appears every Monday and Thursday. Write him at the San Jose Mercury News, 750 Ridder Park Drive, San Jose, Calif. 95190; e-mail sherhold@sjmercury.com; phone (408) 920-5877.