What is Bill and Hold (illegal)?
GAAP requires that revenue recognition be based on whether the revenue is realized or realizable and earned. Revenues commonly are recognized at the time of sale, usually meaning delivery. Because revenue recognition on bill-and-hold transactions departs from this general practice, the auditor must know how and why a company maintains that using this method is justified. In recent enforcement actions, the SEC said a transaction must meet all of the following conditions to justify revenue recognition: The risks of ownership must have passed to the buyer. • The company must have from the customer a fixed commitment to purchase, preferably in writing. • The buyernot the sellermust have requested the transaction and must have a substantial business purpose for a bill-and-hold deal. • There must be a fixed delivery date that is reasonable and consistent with the buyer’s business purpose. • The seller must not retain any significant specific performance obligations, such as an obligation to
