Bill and hold

Booking a sale for goods the company has not shipped and is storing for the customer. It is legitimate under narrow conditions, and it has been at the centre of several large accounting frauds precisely because the conditions are easy to assert and hard to disprove.

For the revenue to be genuine, the customer must have asked for the arrangement, the goods must be identified as theirs and ready to ship, and the company must not be able to use them for anyone else. Control must actually have passed, even though the goods have not moved.

The disclosure, when it exists, sits in the revenue recognition policy. A policy that mentions bill and hold arrangements at a company with rising inventory and rising receivables is worth an afternoon.

Where there is no disclosure and the pattern is there anyway, the pattern is the disclosure.