**Number range CHAPTERANTHONY J. MENENDEZ, C.P.A[.]{.smallcaps}, C.F.E[.
]{.smallcaps}**

Telephone (713) 822-3764

Email: <Menendez.Anthony@Gmail.com>

June 23, 2008

Mr. Arthur Levitt, Jr., Co-Chair

Mr. Donald T. Nicolaisen, Co-Chair

Advisory Committee on the Auditing Profession

Office of Financial Institutions Policy

Room 1418

Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 20220

Response submitted to
www.tres.gov/offices/domestic-finance/acap/comments

RE: Advisory Committee on the Auditing Profession Draft Report

Dear Sir/Madam:

I am Certified Public Accountant and a Certified Fraud Examiner and have
more than thirteen years of expertise gained in public accounting as an
external auditor and from providing financial management, forensic
accounting and litigation support services as a consultant. I have a
deep understanding of Generally Accepted Accounting Principles ("GAAP"),
Generally Accepted Auditing Standards ("GAAS"), the roles of senior
management, external auditors, and audit committees, along with a
familiarity with both, the Rules of Evidence and Rules of Civil
Procedure. However, it is not my experience as an external auditor or
forensic accountant that compels me to respond to the draft report from
the Treasury Committee on the Auditing Profession ("Draft Report").
Instead, it is my experience as a corporate whistleblower seeking
protection under the anti-retaliation provisions of the Sarbanes-Oxley
Act (the "Act"). This experience, I believe, is most relevant to the
Advisory Committee. I have witnessed first hand the failures of the
system that is supposed to protect individuals and restore investor
confidence in the integrity of corporate disclosures and financial
reporting.

There are two main reasons for this communication. First, I warned the
Securities and Exchange Commission (the "SEC") and the Public Company
Accounting Oversight Board (the "PCAOB") about extraordinarily serious
accounting and auditing problems at Halliburton more than two years ago.
However, substantial evidence indicates that Halliburton continues to
make materially inaccurate public filings and its materially inaccurate
filings made in prior years remain uncorrected. I believe that the
accounting and reporting practices Halliburton continues to enjoy are
unjustified and dramatically conflict with a history of enforcement
actions taken by the SEC while conflicting with all the guidance and
professional practices encouraged by regulators, educators,
practitioners and the accounting profession at-large.[^1] Second, based
upon my experience, it is clear that the external auditors need formal
guidance outlining their roles and responsibilities when dealing with
corporate whistleblowers. KPMG's response to me in response to my
protected activity should not be tolerated.

# SEC Not Much of a Watchdog

My experience gives me little confidence that the SEC and PCAOB are
fulfilling their obligations to the investing public. Although the
headlines are no longer dominated by reports of financial fraud, lapses
in audit and corporate governance responsibilities, and intentional
manipulation of accounting rules, individuals, investors, and the
Advisory Committee should take caution before relying on the lack of
news or regulatory enforcement when making important decisions regarding
the integrity of corporate disclosures and financial reporting. As the
NY Times recently reported, the SEC is "Not Much of a Watchdog":

It is probably safe to say that regulation --- especially when it comes
to its friends in business and industry --- is one of the Bush
administration's least favorite government responsibilities. So it
should come as no surprise that even as the financial sector's
recklessness is tipping the economy into crisis, the Securities and
Exchange Commission seems to be bending over backward to not discomfit
the banks and firms it regulates.[^2]

Certainly, when it comes to the Bush administration's "friends in
business and industry", Halliburton, the company once run by Vice
President, Dick Cheney, must be on the "short list". I believe, the
SEC's failure to investigate the practices employed and the actions
taken by Halliburton and KPMG demonstrate the sentiment of the NY Times
article.

# Sarbanes-Oxley Is the Most Ridiculous Thing

In 2003, the former president of Halliburton Energy Services, John
Gibson, at a conference in front of the very auditors responsible for
overseeing Halliburton's compliance had this to say about the
Sarbanes-Oxley Act:

Sarbanes-Oxley is the most ridiculous thing I've seen. We are spending
more time doing certification processes that don't improve internal
control or the quality of anything. It is a 'letter-signing' activity
that appears to be 'blame assignment' as opposed to change in corporate
commitment to integrity. If shareholders could see how much money is
being spent to say 'I'm honest', they would be appalled.[^3]

Although this comment originally upset my delicate professional
sensibilities, based on what I have seen, I find it hard to argue with
Mr. Gibson's statement.

# SAB 101 Revenue Recognition

It is widely known that one of the criteria required by SAB 101[^4] in
order to recognize revenue is that "delivery or performance has
occurred".[^5] A breach of this requirement is widely considered wrong
and venal and typically this would be a subject of an SEC investigation
and finding of a violation of securities laws.[^6]

The general framework and foundation for SAB 101 could not be simpler --
it is based on the common sense notion that revenue on a sale should not
be recognized until the seller has fulfilled its obligations to the
buyer under the sale arrangement. A simple example of this is bill and
hold sales transactions. SAB 101 merely extracted and codified, word for
word, the criteria set forth in 1986 in Accounting and Auditing
Enforcement Release (AAER) No. 108 that must be met in order for a
company to recognize revenue on a product sale prior to delivery of that
product to the customer. Nothing new was presented in SAB 101 with
respect to bill and hold transactions that was not previously
spelled-out in various SEC enforcement cases. SAB 101 reiterates and
reinforces the staff's view that ALL of the bill and hold criteria must
be met in order to recognize revenue prior to shipment/delivery -- there
is nothing new of novel in this concept.[^7]

# Hocus Pocus Accounting- Bill-and-Hold Schemes

The proper accounting for Halliburton's bill-and-hold transactions was
not lost on its external auditors, KPMG. In fact, in early 2005, KPMG
published an article entitled: *Bill and Hold Transactions in the
Oilfield Services Industry,* which made it clear that oilfield services
companies[^8] had to comply with SAB 101 (*i.e*. meet ALL of the SEC
bill-and-hold criteria). KPMG went on to recognize that it would be rare
for an oilfield service company to actually meet the necessary criteria.
The impact to Halliburton was highlighted by KPMG's recognition that
bill and hold transactions for oilfield service companies were "common"
and "involve very large and complex products and equipment that carry
significant amounts of economic value". Notably, the article recognized
that the co-chair of the Advisory Committee and former Chairman of the
Securities and Exchange Commission, Arthur Levitt, Jr. even referred to
recognizing revenue on Bill-and-Hold transactions as **"hocus pocus
accounting"**[^9]. KPMG went on to state that "perhaps no area of
revenue recognition has received as much scrutiny as bill-and-hold
transactions." Although, KPMG provides numerous suggestions highlighting
the need for a company's senior management, audit committee, and
auditors to become fully engaged in the bill and hold analysis, it is
clear that this was not the case at Halliburton.

Although, SAB 101 was arguably one of the most significant pieces of
guidance published by the SEC, Halliburton didn't do anything when SAB
101 came out. Compelling evidence makes it clear that both Halliburton's
CAO, Mark McCollum and Halliburton's Vice President and Controller of
Halliburton Energy Services, J.R. Sult were both well aware of the fact
that Halliburton didn't do anything when SAB 101 came out. Mr. Sult even
commented that it was an "alarm bell" for him. In deposition in
connection with my whistleblower proceedings, Halliburton's former chief
accounting officer and controller, Charles Muchmore testified, admitting
that Halliburton lacked an understanding of SAB 101 and the
bill-and-hold terminology before I brought the accounting problems to
Halliburton's attention in 2005. Mr. Muchmore admitted that this led to
a lack of compliance with SAB 101 and recognized that it would be
**"impossible to determine"** how much revenue may have been improperly
recognized on bill-and-hold transactions for any period before the third
quarter of 2005. The impact of Halliburton's improper accounting appears
very material given the fact that Halliburton has admitted that "in the
majority of instances, Halliburton recognizes revenue on equipment when
it is delivered to a Halliburton-owned warehouse". In 2004 and 2005,
Halliburton product/equipment revenues were approximately \$2.6 and
\$2.1 billion respectively.

# Reasons to Suspect Fraud

Although, Mr. Muchmore testified that Halliburton didn't understand what
a bill-and-hold was before 2005, Halliburton's internal policy was based
on GAAP, and plainly called for a bill and hold analysis whenever
"products are being stored by \[Halliburton\] at the customer's
request." Halliburton's policy then goes on to note that these
"transactions rarely meet the stringent criteria for revenue
recognition". However, in practice, Halliburton accountants ignored the
written policy which required a consideration of the SEC's bill-and-hold
criteria. Instead, they relied upon a one page "Bill-and-Hold Decision
Tree" which simply ignored the SEC's bill-and-hold criteria along with
other relevant GAAP. As Charles Mulford, a Georgia Institute of
Technology accounting professor who reviewed Halliburton's Bill-and-Hold
Decision Tree stated:

The policy in the chart is clearly at odds with generally accepted
accounting principles,\'\'\`\`It\'s very clear cut. It\'s not
gray.\'[^10]

Another accounting professor, Lawrence Brown, from Georgia State
University, also reviewed Halliburton's Bill-and-Hold Decision Tree, and
commented that:

The system has huge problems... It omits many of the criteria needed to
make a proper decision and is vague in other places.[^11]

One of the more significant problems with the Bill-and-Hold Decision
Tree is that it equated the mere passage of "title" with "delivery".
Clearly, the passage of "title" and "delivery" are not the same thing.
At trial, Mr. Sult testified that the passage of title is not delivery.
This testimony was consistent with his earlier statements recognizing
that delivery and title are two different issues. In recognizing that
these were separate issues, Mr. Sult stated that whenever a company is
in physical possession of the inventory sold, a company must address the
bill-and-hold criteria.

In connection with my whistleblower proceedings, Douglas R. Carmichael,
the Wollman Distinguished Professor of Accountancy at Baruch College of
the City University of New York and former Chief Auditor and director of
professional standards of the Public Company Accounting Oversight Board
(PCAOB), the regulator of auditors established by the Sarbanes-Oxley Act
of 2002, issued a report clearly recognizes the failure of Halliburton's
revenue recognition practices to comply with GAAP. [^12]

There is ample reason to suspect fraud and that Halliburton is
intentionally violating GAAP, particularly with respect to its effort to
recognize revenue on its product prematurely. It is obvious not just
based on an analysis of the accounting standards themselves, as well as
all authoritative literature regarding such standards, but by the
actions and background history of Halliburton in this regard as well.
First, none of the authoritative literature supports the notion that one
may consider delivery for purposes of SAB 101, when there is delivery to
ones own warehouse. For example, Mr. Sult originally agreed that
Halliburton's accounting was wrong, and while based upon his testimony,
he has now changed his mind, he cannot identify the reason he changed
his mind. However, prior to admitting that there was no literature
supporting Halliburton's recognition of revenue on goods parked at
Halliburton-owned warehouses, Halliburton attempted to rely on SEC
guidance regarding Vaccines. This attempted reliance is particularly
exemplary of Halliburton's fraudulent intent.

# SEC Provides Special Accounting Treatment?

While Halliburton enlisted from Sult testimony that the SEC guidance
regarding vaccines was supportive of Halliburton's position regarding
revenue recognition, such guidance in fact, reveals quite the opposite-
that Halliburton's position is plainly wrong. Halliburton's attempted
reliance on the vaccine guidance underscores the notion that there is no
literature that would support Halliburton's interpretation, as Mr. Sult
ultimately had to admit.

With respect to bio-terror and flu vaccines, the SEC guidance was issued
to address a special and compelling problem. Vaccines, as the SEC noted,
are manufactured and then held by the manufacturer with the hope that
"they are never needed and therefore are never delivered."[^13]
According to the SEC after noting that the government vaccine stockpile
programs were "unique in many respects" issued a very limited permission
for such vaccine makers to recognize revenue upon delivery to its own
warehouses, but only upon full disclosure to investors. This guidance
was limited only to vaccines that were part of the government stockpile
program and specifically those of childhood disease vaccines, influenza
vaccines, and other vaccines and counter measures sold to the federal
government for purposes of the strategic national stockpile. [^14]
Importantly, it was done only:

due to the uniqueness of the vaccine stockpile programs as discussed
above, **the alternative method is available only to the sales of
enumerated vaccines by a vaccine manufacturer and may not be extended by
analogy to other circumstances.**

Id. at p. 5 (emphasis added). Furthermore, the SEC required that
"disclosures are provided that allow for a clear understanding by
investors of the subject transactions, the related accounting, and the
effect of this alternative accounting method in the financial
statements. Id. at p. 4. Accordingly, not only is the SEC guidance not
available for Halliburton, it was specifically limited to vaccine
holders because of their unique circumstances. Halliburton has no such
compelling justification for its accounting treatments. Needless to say,
the SEC has not PUBLICLY granted Halliburton any special permission for
its accounting treatment. Based upon testimony, Halliburton never
attempted to obtain such clearance from the SEC. Furthermore,
Halliburton does not even comply with the disclosures that the SEC
required for vaccine holders, even despite Halliburton's lack of
compelling justification.

The fact that Halliburton intentionally evades the bill-and-hold
criteria is further evidenced by the fact that Halliburton's argument
essentially can be used by anybody who meets just one of the seven
required bill-and-hold criteria. For example, Halliburton's
justification for recognizing revenue is because title and risk of loss
has passed to the customer and Halliburton is merely holding it for the
customer. This only meets one of the bill-and-hold criteria which
require that the risk of ownership had passed to the customer; while
suggesting that there is a business purpose for the seller holding the
product. There would be no need to meet the element of a fixed delivery
date (which Halliburton concedes it cannot meet) or any of the remaining
bill-and-hold criteria (*e.g.* the requirement that the product is
complete and ready for its intended use).[^15] Therefore, Halliburton's
justification is merely a transparent attempt to evade the bill-and-hold
factors and avoid correcting its improper accounting practice. In
addition, this practice allows Halliburton the ability to manage
reported revenues and earnings in order to hit targets at the end of a
quarter or a year end.[^16]

This is made even clearer by the fact that up until the time I pointed
out that Halliburton had failed to account for revenue properly; it had
always considered delivery to its own warehouse to be a "bill-and-hold"
transaction. Halliburton's policy effective October 6, 2004 and valid
during 2005 (if not still valid today) states:

'bill-and-hold' transactions refers to sales transactions which have
been billed to the customer, but the products have not been delivered
and are being stored by ESG at the customer's request.^1^[^17]

Accordingly, Halliburton's own policy recognized that products being
delivered to and stored out of Halliburton's own warehouse was
considered a bill-and-hold transaction. A Halliburton internal
memorandum from January of 2004 also recognized that:

SAB104 provides examples . . . for instances when inventory is in
manufacture for the customer but the customer has not taken physical
possession of the inventory. The SEC describes conditions that must be
met in order to recognize revenue when a customer has not taken physical
possession of the inventory. These types of transaction are referred to
as 'bill and hold' transactions.

Accordingly, Halliburton plainly recognized that in the absence of
physical delivery to the customer, delivery to its own warehouse was
merely a bill and hold transaction, and that revenue could not be
recognized without meeting ALL bill and hold criteria. In 2005, when I
discovered that the use of a faulty Bill-and-Hold Decision Tree was
leading to recognition of product revenue in all instances where title
had passed and there was no contractual right of return, regardless of
the remaining bill and hold criteria (such as fixed delivery date, among
others), it was mind-numbingly obvious that Halliburton had a serious
revenue recognition problem. However, knowing that Halliburton could
never meet the bill and hold criteria, Halliburton and KPMG, now have
done an about face and reclassified what are clearly "bill and hold
transactions" with a clever euphemism "customer-owned inventory"
claiming that there has been "delivery". As discussed below, the
argument is essentially undermined by the fact that Halliburton does not
even mention delivery in its revenue recognition disclosures in its
public filings.

The reasons for doing so are obvious. Halliburton has plainly been
accounting for its product revenue improperly for years, at least since
the time of the Bill-and-Hold Decision Tree. The evidence is
overwhelming that company policy and senior management understood that
storage at a Halliburton warehouse was a bill and hold transaction and
that ALL the bill and hold criteria must be met to recognize revenue.
Compelling evidence shows that in 2005, Halliburton went to great
lengths in an attempt to justify delivery to its own warehouse as
"delivery" as required by SAB 101.

It appears that KPMG originally balked at approving revenue recognition
on Halliburton's transactions unless Halliburton provided them a legal
opinion stating that risk had passed from Halliburton to its customers.
Notwithstanding the fact that "delivery" for purposes of SAB 104 has the
every day meaning of physical delivery, Halliburton's legal department
drafted an internal opinion resorting to the law of bailment in an
effort to justify the recognition of revenue on equipment parked in
Halliburton's warehouses. The legal analysis, however, further
demonstrates the fraudulent nature of Halliburton's argument. Any
company in a bill-and-hold situation is theoretically a bailee. After
all, one of the seven required elements of the bill-and-hold criteria is
that risk of ownership had passed to the customer. Therefore, any time
where the risk of ownership had passed to the customer, yet the seller
retained physical possession of the product, the seller would be
considered a bailee. Accordingly, the bailment status is only the
beginning of an analysis and hardly the end.

Moreover, Halliburton's bailment memo plainly demonstrates that
Halliburton is not delivering product recognizable as separate from its
services such that it could be recognized under either SAB 104 or EITF
00-21. This is also supported by the testimony of Halliburton's external
auditor who admitted that Halliburton only manufactures the products to
generate the service revenue. In reality, Halliburton is a service
company and the products and equipment are only incidental to its
services.[^18]

Ironically, while Halliburton has tagged me as "stubborn," a "lone
ranger" and refusing to change, it is Halliburton, alone among its
competitors, that refuses to mention "delivery" in its Form 10-K
disclosures despite the fact that its major competitors, Schlumberger,
Baker Hughes, and Weatherford specifically mention "delivery" in their
critical accounting policies revenue recognition disclosure.[^19] In
fact, no examples have been found to suggest that any other company
recognizes revenue when delivery is made to its own warehouses without
consideration of the bill and hold criteria. Mr. Sult testified that he
had no knowledge of any competitors that recognize revenue when the
delivery is made to their own warehouses. Halliburton accountants
testified that they did not even look at other companies when they
developed their interpretation of SAB 101 in 2005 regarding
bill-and-hold transactions. Moreover, despite all of this, Halliburton
insists to this day on refusing to mention delivery in its public
filings despite the uniqueness of its definition of "delivery".

# Save It for the Subpoena

"Save it for the subpoena" is something you would normally not want to
hear coming from your external auditor. However, that is exactly what
the external auditor told me when I asked him to explain why Halliburton
was allowed to ignore the SEC bill-and-hold rules while every other
company had to comply with them. Even before he told me to "save it for
the subpoena", the auditor explained to me that the reason Halliburton
didn't have to comply with the SEC bill-and-hold rules was because it
was Halliburton. This is the same auditor who authored the KPMG article
mentioned above, clearly contradicted Halliburton's accounting
practices. Although Halliburton claims that when the product/equipment
is parked in a Halliburton-owned warehouse, the same external auditor
testified "Halliburton doesn't actually deliver anything" and that
"delivery is irrelevant" because Halliburton does not actually sell the
equipment to its customers.[^20]

# Halliburton's July 2007 Press Release

In an apparent attempt to subside any concerns the investing public
might have about my whistleblower complaint or its accounting practices,
Halliburton issued a press release. Despite the fact that (1) no
authoritative literature was identified to support Halliburton's
accounting practices and (2) not a single company was identified
suggesting Halliburton's accounting was industry practice, Halliburton's
press release stated:

With regard to Halliburton's revenue recognition practices, the
Company's policies are rigorous and comply with U.S. generally accepted
accounting principles (GAAP) in conjunction with recognized industry
practice.[^21]

Although, the press release may have had its intended effect, investors
deserve to know that these claims are not supported. In fact, to the
contrary, Halliburton was aware of GAAP and industry practice that did
not support its claims. For example, Halliburton was plainly aware of
the Grant PrideCo situation when making its decision not to mention
delivery in its disclosures and avoid the bill-and-hold criteria.[^22]

# 1-800 This Is Your CFO

To encourage whistleblowing, employers are required to comply with
Sarbanes-Oxley which mandates that employers set up audit committees,
which must have procedures for "the confidential, anonymous submission
by employees of the issuer of concerns regarding questionable accounting
or auditing matters."[^23]

Dealing with whistle-blowers might not be the most expensive element of
complying with Sarbanes-Oxley. But it must be taken seriously or the
consequences could be costly, experts say.

\"People need to know, when they make a \[whistle-blower type\]
complaint, that it\'s not 1-800-This Is Your CFO,\" Dierickx said....
[^24]

Although the Act imposes criminal penalties for retaliation against
whistle-blowers reporting violations of SEC rules, it appears that
Halliburton did not take the consequences seriously. In fact, my
confidential complaint to Halliburton's audit committee involving
questionable accounting and auditing practices was almost immediately
provided to the CFO, who in turn, promptly forwarded the complaint
directly to the CAO, VP of Investor Relations, and to the KPMG audit
partner (the individuals I believe chiefly responsible for the alleged
misconduct). Brazenly, all of this occurred before my complaint was even
provided to Halliburton's audit committee.

# KPMG's Surprising Response to Corporate Whistleblower

In response to knowing that I had provided a complaint to Halliburton's
audit committee highlighting questionable accounting and auditing
practices, the KPMG audit partner instructed the audit team members to
avoid communications with me. In fact, I was excluded from meetings
involving accounting matters because KPMG refused to attend meetings if
I was going to be present. Despite the obvious implication that an
external auditor should investigate whistleblower complaints involving
questionable accounting practices, my job required that I work with
KPMG; which is a fact not lost on KPMG. A KPMG audit senior manager
testified that it was an "important part" of my job to work with KPMG
auditors. Mr. McCollum testified that it would have been assumed, as
part of the accounting resolution process, the auditors would have to
interface with me and acknowledge that that aspect of his job would be
made very difficult if I could not talk to KPMG. Nevertheless, McCollum
testified that he made no effort to get KPMG to deal with me. McCollum
also testified that he was not aware of anybody that made any effort at
all to get KPMG to communicate and work with me.

# Recommendation

Although the pace of change in the global corporate environment and the
increasing complexity of business transactions and financial reporting
are part of the problem, I believe the real problem is a fundamental
lack of accountability and the ineffective enforcement by the regulators
following the enactment of the Sarbanes-Oxley Act. In an effort to
participate in the process, I provide my experience and a couple of
recommendations. First, I recommend adding a separate section to the
report that focuses on the importance of consistent and effective
regulatory oversight. Second, I recommend a section addressing the role
of external auditors upon receiving corporate whistleblower complaints
involving questionable accounting and auditing practices.

Sincerely,

Anthony Menendez

[^1]: In fact, most startling, is the publication by KPMG entitled
    Bill-and-Hold Transactions in the Oilfield Services Sector. This
    publicly available guidance to which many other professionals and
    companies may in fact rely upon is patently inconsistent with the
    practices, KPMG themselves affords Halliburton.

[^2]: See NY Times Editorial: Not Much of a Watchdog; April 17, 2008

[^3]: See Oil IT Journal, May 2003;
    http://oilit.com/2journal/4php/4_builddoc.php?year=2003&month=5

[^4]: In response to the concerns raised by Mr. Levitt and in an effort
    to return "quality" to financial reporting, the SEC staff issued SAB
    101 on Revenue Recognition in December 1999 suggesting that SAB
    101would help tighten up what they saw as "sloppy financial
    reporting".

[^5]: See SAB 101, Revenue Recognition in Financial Statements

[^6]: See Speech by SEC Staff: Debits and Credits in the New Economy;
    Remarks by Robert A. Bayless, Chief Accountant, Division of
    Corporation Finance U.S. Securities & Exchange Commission- Meeting
    of the Silicon Valley Chapter of Financial Executives International
    San Jose, California September 18, 2001;
    http://www.sec.gov/news/speech/spch513.htm

[^7]: Quote: Speech by SEC Staff: Revenue Recognition; Remarks by Lynn
    E. Turner, Chief Accountant- U.S. Securities & Exchange Commission-
    USC SEC and Financial Reporting Institute, May 31, 2001

[^8]: Note: Halliburton is the second largest oilfield service company
    in the world and according to the author's testimony, was also, his
    only oilfield service company client.

[^9]: Mr. Levitt decried the use of schemes such as the bill-and-hold in
    his well-known September 28, 1998 speech delivered at New York
    University entitled: The Numbers Game. In his speech, Mr. Levitt
    raised serious concerns about the quality of financial reporting and
    said, \"Our enforcement team will continue to root out and
    aggressively act on abuses of the financial reporting process.\"

[^10]: See: Halliburton\'s Accounting Might Make You Wonder, by Jonathan
    Weil, June 21, 2007 (Bloomberg)
    -http://www.bloomberg.com/apps/news?pid=20601039&sid=am_McfuM6i4o

[^11]: See Accounting Case Hits Halliburton, Houston Chronicle, July 4,
    2007.

[^12]: Upon request by the Advisory Committee, I would be happy to make
    available the report of Mr. Carmichael.

[^13]: SEC Release Nos. 338642; 34-52885; IC-27178. 17 C.F.R. §§ 231,
    241, 271 (December 5, 2005), p. 2

[^14]: Id. at pp. 4-5

[^15]: Evidence and testimony clearly recognize that the equipment is
    generally not complete and ready for its intended use. In many
    cases, Halliburton has to wait months until the well development
    plan gets underway and the well conditions are known; at which
    point, the equipment is actually assembled, then tested and shipped
    to the well-site in order for Halliburton to perform the requested
    oilfield services.

[^16]: A situation apparently recognized by Mr. Sult in 2005 who said
    that he believed that certain product service lines were using
    "direct sales" to hit targets at quarter and year ends in order to
    avoid "blowing plan".

[^17]: ^4^14 ESG stands for Energy Services Group. At the time,
    Halliburton was divided between KBR and ESG. KBR was later split
    from the company and ESG today is known as Halliburton.

[^18]: Moreover, Halliburton's bailment memo makes it clear that the
    customer cares little about the product without Halliburton's
    subsequent services.

[^19]: Interestingly, Halliburton's 2004 10K disclosed that it
    recognized revenue "as services are rendered or products are
    shipped" and includes no mention of the fact that in reality shipped
    meant when products were moved into a Halliburton warehouse. After,
    I raised my concerns that Halliburton's disclosures were misleading,
    Halliburton's 2005 10K no longer claims that it recognizes revenue
    when products are shipped while ignoring the term "delivery"..

[^20]: Hearing Transcript In the Matter of Anthony Menendez v.
    Halliburton, Inc. Case No. 2007-SOX-5

[^21]: http://www.halliburton.com/news/archive/2007/corpnws_070507.jsp?

[^22]: In 2005, Grant PrideCo recognized a material weakness and
    restated its financial statements related to its revenue recognition
    practices because it determined that "while title and risk of loss
    had transferred to the customer" it could not meet all the
    bill-and-hold transactions "prior to the products being in the
    physical possession of the customer." Halliburton revenue
    recognition training programs prior to 2005 also recognized that
    other companies in the oilfield service industry had to restate for
    bill-and-hold transactions based upon SEC reviews.

[^23]: 15 U.S.C. § 78j-1(m)(4)(B).

[^24]: Sarbanes-Oxley compliance costs rising; HR Magazine, Jan, 2005 by
    Kathy Gurchiek; Quote: Constance Dierickx, Ph.D.,