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The new revenue standard: life sciences

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The 2018 effective date of the new revenue recognition standard (the standard) issued by the Financial Accounting Standards Board (FASB) is fast approaching. As life sciences entities work on implementation, they need to consider all developments.

For example, the FASB amended its guidance in the standard on accounting for licenses of intellectual property (IP), identifying performance obligations, assessing collectability and measuring noncash consideration. In addition, the Joint Transition Resource Group for Revenue Recognition (TRG) generally agreed on several issues that may affect the life sciences industry.

This publication highlights key aspects of applying the standard to life sciences arrangements, including:

  • Assessing the scope of collaborative arrangements
  • The effect of termination clauses on contract duration
  • Identifying performance obligations
  • Applying the guidance on variable consideration
  • Determining if there is a significant financing component
  • Recognizing revenue from licenses of IP and sales-based royalties
  • Accounting for consideration paid or payable to a customer

It also addresses significant changes to legacy practice and reflects the latest implementation insights.

Life sciences entities have to use more judgment and may need to make more estimates than they do today. Life sciences entities have to update their policies, systems and controls to meet the new requirements, even though their pattern of revenue recognition may not change. The standard also requires more interim and annual disclosures.

We don’t anticipate further significant changes to the recognition and measurement principles in the new revenue standard, so life sciences entities should focus on implementation. Many entities are finding that implementation requires significantly more effort than they expected.

While many transactions between parties to collaborative arrangements are in the scope of ASC 808, the FASB has added a project to its agenda to clarify when these transactions should be accounted for under the new revenue standard. Life sciences entities with collaborative arrangements should monitor developments.


The full report, How the new revenue standard affects life sciences entities, contains a summary of the standard in the appendix, supplements and should be read in conjunction with Financial reporting developments: revenue from contracts with customers (ASC 606). The views we express in this publication may evolve as implementation continues and additional issues are identified.