United States

Changes to revenue recognition in the life sciences industry


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In May 2014, the Financial Accounting Standards Board (FASB) issued new revenue recognition guidance that will, upon its effective date, replace most pre-existing revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted accounting principles (GAAP). Implementation of the new guidance must occur no later than the quarter and year beginning January 1, 2018, for public entities with a calendar year end. Public entities include public business entities and certain not-for-profit entities and employee benefit plans. For all other entities with a calendar year end, implementation must occur no later than the year ending December 31, 2019.

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. Such entities should not delay their implementation activities given that the effects of the new guidance could be significant from a recognition and measurement perspective and will be significant from a disclosure perspective. 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

With over three years having passed since initial issuance of the new guidance, entities in the life sciences industry should be well on their way to assessing how it will affect their revenue recognition accounting policies and disclosures and developing an implementation plan. This is particularly true for those entities that are considered public entities, those that plan on electing the full retrospective transition method and those that have multi-year contract terms with their customers.


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