2017年-普华永道全球_US_GAAP_-_Issues_and_solutions_for_the_pharmaceutical_and_life_sciences_industries_2017_edition_96页_2mb

Summary of US GAAP - Issues and Solutions for the Pharmaceuticals and Life Science Industries (2017 Edition)

Core Content

This document provides guidance on accounting issues specific to the pharmaceuticals and life sciences industries under US GAAP, focusing on capitalization and impairment of development costs, research and development (R&D) accounting, manufacturing considerations, sales and marketing expenses, healthcare reform implications, business combinations, and revenue recognition under ASC 606. It aims to help companies navigate complex accounting scenarios and ensure consistent financial reporting practices.

Main Points

Capitalization and Impairment

• Internal Development Costs: According to ASC 730-10-25-1, research and development costs should be expensed as incurred, regardless of the likelihood of success or regulatory expectations.
• Capitalization Criteria: Costs are not capitalized unless they meet specific criteria, such as technological feasibility and the ability to generate future economic benefits.
• Indefinite-Life Intangible Assets: Assets with no legal, regulatory, or other limitations on their useful life are considered to have an indefinite life and are not amortized. They must be tested for impairment annually.
• Impairment Testing: If the carrying amount of an intangible or long-lived asset is not recoverable, an impairment loss should be recognized. This is determined by comparing the carrying amount with the fair value of the asset.

Research and Development (R&D)

• Definition and Scope: R&D costs include materials, equipment, personnel, contract services, and a reasonable allocation of indirect costs.
• Expenditures Classification: Routine manufacturing updates are expensed as cost of sales, whereas identifying new formulations is considered R&D.
• Milestone Payments: Sales-based milestone payments are treated as contingent obligations. Once it becomes probable that the milestone will be achieved, the payment is accrued and may be expensed or capitalized depending on the nature of the arrangement and the economic pattern of the payment.

Manufacturing

• Validation Batches: Costs associated with validation batches should be expensed as incurred.
• Development Supplies: These are expensed as incurred unless they are specifically intended for future production and meet capitalization criteria.
• Pre-Launch Inventory: Costs related to 'in-development' drugs should be expensed as incurred, as they do not create or prepare the asset for its intended use.

Sales and Marketing

• Advertising and Promotional Expenditures: These should be expensed as incurred, unless they meet specific capitalization criteria.
• Co-Marketing Income and Expense: Should be presented appropriately in the financial statements, reflecting the nature of the arrangement.

Healthcare Reform

• Pharmaceutical Manufacturers Fee: Companies must account for this fee as an expense, as it is a regulatory requirement and not a capitalizable asset.

Business Combinations and Asset Acquisitions

• Asset Acquisition vs. Business Combination: The distinction is critical for accounting treatment. Assets not part of a business combination are treated under ASC 730 for R&D purposes.
• Acquired In-Process R&D (IPR&D): IPR&D is generally expensed as incurred, unless it is expected to be used in a future product or process, in which case it may be capitalized.

Revenue Recognition under ASC 606

• Distinct Promises: Companies must assess whether the promises in a contract are distinct and identify the standalone selling price for each.
• Transaction Price Determination: Includes consideration of variable consideration, such as price protection, rebates, and sales-based milestones.
• Right of Return and Pay-for-Performance Arrangements: These require careful assessment of the transaction price and revenue recognition timing.

Key Information

• General Principle: R&D costs should be expensed as incurred unless they meet the capitalization criteria.
• Capitalization Criteria: These include technological feasibility, the ability to generate future economic benefits, and the absence of alternative use.
• Impairment Considerations: Management must evaluate impairment indicators for both intangible and tangible assets, including market price changes, regulatory failures, and changes in medical treatments.
• Milestone Payments: Should be accrued when it becomes probable that the milestone will be achieved. The accounting treatment may vary depending on whether the payment is considered a royalty or an additional consideration.
• Indefinite-Life Assets: These are rare in the pharmaceutical industry due to limited patent lives and the potential for technological advances.

Structure and Guidance

• The document includes detailed scenarios and solutions for various accounting issues.
• It references key sections of ASC 730, ASC 350, and ASC 360-10 for guidance.
• It emphasizes the importance of consistent financial reporting and the need for tailored analysis based on specific facts and circumstances.

Conclusion

This publication serves as a valuable resource for pharmaceutical and life sciences companies to understand and apply US GAAP in complex situations. It highlights the need for careful evaluation of R&D costs, impairment indicators, and revenue recognition practices, while also providing a framework for consistent and transparent financial reporting.