Revenue for the life sciences industry

KPMG’s insights on ASC 606 implementation.  With the new revenue standard now in effect, KPMG reports on the most significant industry issues,  including updates in this March 2018 edition to clarify the latest thinking around the accounting for milestone payments.

Applicability

Applying the new revenue recognition standard

• Companies in the life sciences industry

Relevant dates

Mandatory effective dates and early adoption provisions:

Effective dates

Mandatory effective dates and early adoption provisions:

Annual periods:

For public business entities and certain not-for-profit entities the effective date for annual periods is the fiscal years beginning after Dec. 15, 2017.

For all other entites the effective date for annual periods is the fiscal years beginning after Dec. 15, 2018.

Interim periods:

For public business entities and certain not-for-profit entities the effective date for interim periods is the fiscal years beginning after Dec. 15, 2017.

For all other entites the effective date for interim periods is the fiscal years beginning after Dec. 15, 2019.

Early adoption:

For public business entities and certain not-for-profit entities the effective date for early adoption is the fiscal years beginning after Dec. 15, 2016.

For all other entites the effective date for early adoption is the fiscal years beginning after Dec. 15, 2016.

Key impacts

• Rebates, discounts, chargebacks, price protection, outcomes-based pricing, milestone payments and rights of return will need to be estimated and may result in earlier recognition of revenue
• Companies applying sell-through accounting may recognize revenue earlier under the new standard
• Licenses of IP could have different accounting under the new standard, and significant judgment will be required to evaluate certain arrangements
• Entities need to evaluate whether a counterparty in a collaborative arrangement is a customer to determine if some or all of the arrangement is in the scope of the new standard

Report contents

• Specific issues for life sciences companies
• Expanded disclosure
• Effective dates and transition
• Impact on the organization

Related content

• Handbook: Revenue recognition