A new global standard on revenue

What this means for the life sciences industry

The International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board have issued their new standard on revenue – IFRS 15 Revenue from Contracts with Customers (ASU 2014-09 or Topic 606 in the U.S.). This bulletin summarizes the new requirements and what they will mean for entities in the life sciences industry that apply International Financial Reporting Standards (IFRS).

Recently issued IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts and provides 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 recognized?
  • How should sales- or usage-based royalties be accounted for?
  • How do I know whether I should recognize revenue from an intellectual property licensing arrangement over time or at a point in time?

With IFRS 15’s potential to significantly impact the timing and amount of revenue recognized, 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.