Washington, D.C., December 6, 2005—In a move that could save thousands of lives, the U.S. Securities and Exchange Commission has cleared the red tape of its accounting policy that was frustrating efforts to combat a potential bird flu epidemic.
Yesterday, the SEC announced a change to its “bill-and-hold” accounting policy to allow vaccine manufacturers to show shareholders the payments they receive for contributing to the government’s vaccine stockpile. The new accounting guidance for vaccines sensibly states that the SEC “will not object” if companies choose to recognize revenues when the payments are received.
Previously, the policy only allowed companies to show the revenue on their books when the vaccines were delivered to the medical facilities. This operated as a disincentive for vaccine production and ran counter to the very purpose of a stockpile. As the SEC notes in its new guidance, “the primary objective of purchasing the vaccines is not to take delivery but rather to be able to require delivery on a moment’s notice.”
The Competitive Enterprise Institute first brought attention to the harmful effects of the SEC policy in an Oct. 21 Wall Street Journal op-ed, “Death by Accounting”, by CEI Fellow in Economic Policy John Berlau.
“The effect of this rule on the vaccine stockpile shows how seemingly arcane accounting policies do affect people’s real lives,” says Berlau. “It is a senseless policy that had particularly harmful effects in this situation. Fixing the policy for vaccines will save lives. It is a good and necessary first step in reforming an outmoded accounting policy.”
Berlau points out that aside from potential damage to the vaccine stockpile, the SEC accounting policy for “bill-and-hold” transactions could also chill innovation in other areas. There could be many reasons why a purchaser, such as a home-based Internet seller, doesn’t want to take immediate delivery of goods they have purchased, and companies that cater to these customers should not have to delay reporting revenues to their shareholders.