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Financial misstatements regarding goods manufactured or acquired for resale could involve either the revenue side or the cost side. In a recent case, the SEC
Financial misstatements regarding goods manufactured or acquired for resale could involve either the revenue side or the cost side. In a recent case, the SEC charged Evoqua Water Technologies Corp. with improperly inflating revenues before its initial public offering. Employees of the subsidiaries of Evoqua used two methods to accomplish this. First, they recognized revenue from sales that did not meet the minimum standards for revenue recognition under GAAP. Second, they recognized income early under contracts that would meet GAAP standards once products were delivered to customers. However, they billed customers and recognized revenue in advance of shipping products. In the early stages of the scheme, the company held products in its own warehouses. Later, they shipped products to warehouses they rented from third parties, but these shipments still did not meet the GAAP definition of delivery to customers. This second method is commonly called a "bill and hold" scheme
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