Interpreting the revenue recognition accounting guidance for your biotech collaboration is challenging if you aren't a technical accounting guru. Thankfully, there are great resources available online to apply the standard to your situation. Below, I discuss five resources to get you up to speed:
- RevenueHub - RevenueHub publishes plain-English articles and case studies that explain the major aspects of the new revenue recognition standard. It serves as a one-stop resource to find relevant revenue guidance and understand the new revenue standard. They also offer guidance to interpret tough revenue questions not addressed by their articles.
- MossAdams Collaboration Arrangements - MossAdams provides a concise step-by-step breakdown of the 5-step approach to determine when revenue is recognized under a collaboration and out-licensing arrangement. MossAdams asks key questions that should be answered when thinking through each step. These questions can help guide users when looking at the more technical resources offered by Deloitte and PwC below.
- Deloitte’s Accounting and Financial Reporting Update - detailed technical guide that can be used for collaboration arrangements and other types arrangements common in life science industry. This resource provides numerous examples of unique circumstances that may be applicable to your arrangement. Bring your coffee though, this guide is very technical.
- PwC’s New Revenue Guidance in the pharmaceutical and life sciences sector - another technical guide that compares the new revenue standard to current US GAAP and IFRS practices. Similar to the Deloitte guide, offers numerous examples applicable to the life science industry.
- 10-K and 10-Q SEC filings for comparable companies - example 10-K and 10-Q disclosures can help understand how to interpret the guidance. Be aware that SEC disclosures are generally high-level, so the underlying details might differ between arrangements. Also, different audit firms may have a different interpretation of the guidance.
The above resources I found helpful in getting up to speed on the new revenue guidance. If your company concludes that you have a single performance obligation (step 2) and conclude that the performance obligation is satisfied over time (step 5), using the input method (measuring effort (i.e. costs) to complete the performance obligation) is an appropriate method to recognize revenue. Contact intheBlk software to see if our revenue recognition model can save you time and provide better monitoring controls, analytical functionality and forecasting ability for recognizing your collaboration revenue.