In May 2014, the Financial Accounting Standards Board (FASB) issued new revenue recognition guidance that replaces almost all pre-existing revenue recognition guidance in current U.S. generally accepted accounting principles (GAAP), including industry-specific guidance,.
All entities in the life sciences industry whose financial statements are prepared in accordance with U.S. GAAP will be affected by the new guidance. To assist in understanding how a life sciences entity could be significantly affected by the new guidance, we have prepared our white paper, Changes to revenue recognition in the life sciences industry, in which we discuss the following topics:
- Determining whether collaboration agreements are in the scope of the new guidance
- Identifying the units of account
- Measuring and recognizing variable consideration
- Allocating the arrangement consideration or transaction price to the units of account
- Determining whether revenue should be recognized over time or at a point in time
- Accounting for licenses of and rights to use intellectual property
- Accounting for sales involving distributors
- Accounting for contract manufacturing and contract research services
- Addressing the new disclosure requirements
While the effective dates for the new guidance are staggered, they are now upon us. With limited exceptions, the new guidance was effective as of January 1, 2018 for public entities with calendar year ends. For all nonpublic entities with calendar year ends, the new guidance is effective in the year ending December 31, 2019. Time is of the essence for these entities given that implementation of the new guidance could represent a significant undertaking in many cases. Our white paper can be a valuable tool in the implementation process to help understand the application of ASC 606 to entities in the life science industry.
For a comprehensive discussion and numerous examples of applying the new guidance, refer to our publication, A guide to revenue recognition.