10 -31 SEC A ccounting and Auditing Enforcement release (AAER) NO. 108 specifies

Question

                    10 -31 SEC Accounting and Auditing Enforcement release (AAER) NO. 108 specifies certain conditions or criteria that a bill                     and hold transactions of a public company should meet in order to qualify for Revenue recognition. The AAER also specifies certain factors that should be                     considered in evaluating whether a bill and hold transaction meets the requirements for revenue recognition. AAER. NO. 108 states that a bill and hold                     transaction should meet the following conditions:                 

                    1. The Risks of ownership must have passed to the buyer                 

                    2. The customer must have made a fixed commitment to purchase the goods, preferably reflected in written documentation.                 

                    3. The buyer, not the seller, must request that the transaction be on a

Explanation / Answer

The above listed conditions are the important conceptual criteria that should be used in evaluating any purported bill and hold sale. This listing is not intended as a checklist. In some circumstances, a transaction may meet all factors listed above but not meet the requirements for revenue recognition. The Commission also has noted that in applying the above criteria to a purported bill and hold sale, e individuals responsible for the preparation and filing of financial statements also should consider the following factors:

1. The date by which the seller expects payment, and whether the seller has modified its normal billing and credit terms for this buyer;

2. The seller's past experiences with and pattern of bill and hold transactions;

3. Whether the buyer has the expected risk of loss in the event of a decline in the market value of goods;

4. Whether the seller's custodial risks are insurable and insured;

5. Whether extended procedures are necessary in order to assure that there are no exceptions to the buyer's commitment to accept and pay for the goods sold (, that the business reasons for the bill and hold have not introduced a contingency to the buyer's commitment).

Delivery generally is not considered to have occurred unless the product has been delivered to the customer's place of business or another site specified by the customer. If the customer specifies an intermediate site but a substantial portion of the sales price is not payable until delivery is made to a final site, then revenue should not be recognized until final delivery has occurred.

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