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You are a newly promoted audit manager at a national CPA firm with international affiliates, and you are very excited about being part of the audit team of a major client of the firm: a large pharmaceutical corporation that participates in the U.S. government’s Vaccine for Children Program (VCP). The VCP purchases its federal stockpile of pediatric vaccines from only a small, select group of major pharmaceutical companies deemed eligible to participate in this program. This vaccine stockpile is a strategic reserve in which vaccine makers maintain a six month supply. Your appointment to this audit team bodes well for your long-term goal of becoming a partner at the firm.” p. 691
“As part of your audit planning, you begin by reviewing U.S. generally accepted accounting principles (GAAP) revenue recognition concepts and criteria, followed by transaction-specific guidance that directly relates to pharmaceutical companies’ vaccine stockpiles, which are classified as bill-and-hold sales. You know that a bill-and-hold sale is a sale in which the buyer purchases products and requests that the seller hold the product to be delivered upon request at a future time. The seller can charge the buyer an inventory carrying cost. Sometimes, the buyer pays for the product before it is shipped, such as the VCP in which your client participates. The government prepays for the stockpiled vaccines, which are stored by the vaccine companies in their warehouses and are not delivered until the government—in this case, the Centers for Disease Control (CDC)— request delivery. The vaccine makers are also required to rotate the inventory as the vaccines expire. p. 692
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