The International Accounting Standards Board (IASB) and US FASB have issued their new Standard on revenue – IFRS 15 ‘Revenue from Contracts with Customers’ (ASU 2014-09 or Topic 606 in the US). This bulletin summarises the new requirements and what they will mean for the life sciences industry.
Recently issued IFRS 15 ‘Revenue from Contracts with Customers’ replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction Contracts’, and provides significant new guidance addressing key questions such as:
- When can I include a performance-based milestone payment in revenue?
- When do bundled goods or services represent a separate performance obligation?
- How do I account for collaborative research arrangements with customers?
- Can extended payment terms affect the total amount of revenue I recognise?
- How should sales- or usage-based royalties be accounted for?
- How do I know whether I should recognise revenue from an IP licensing arrangement over time or at a point in time?
With the potential to significantly impact the timing and amount of revenue recognised, entities in the life sciences industry will want to invest time up front to ensure all critical impacts are identified and understood well in advance of implementation.
