2017年-普华永道全球_IFRS_issues_and_solutions_for_the_pharmaceuticals_and_life_sciences_industries_109页_2mb

Summary of IFRS Issues and Solutions for the Pharmaceuticals and Life Sciences Industries

Core Content

This document provides guidance on the application of International Financial Reporting Standards (IFRS) in the pharmaceuticals and life sciences industries, focusing on accounting for research and development (R&D) costs, intangible assets, revenue recognition, business combinations, and presentation and disclosure requirements. It highlights that while IFRS offers general principles, the application in this sector often requires judgment due to the complexity and uniqueness of transactions.

Main Topics and Key Points

1. R&D and Intangible Assets

• Capitalisation Criteria: Development costs can be capitalised as intangible assets if all the following are met:

  • Technical feasibility of completing the asset;
  • Intention to complete and use or sell the asset;
  • Ability to use or sell the asset;
  • Probable future economic benefits and existence of a market;
  • Availability of resources to complete development;
  • Reliable measurement of expenditure.

• Capitalisation of Internal Development Costs:

  • Scenario 1: If regulatory approval is obtained in a similar market and there are low barriers to approval in a secondary market, capitalisation may be appropriate.
  • Scenario 2: If additional trials are required for regulatory approval in another market, technical feasibility is not yet established, and capitalisation should not occur.
  • Generics: Development costs for generic drugs can be capitalised if technical feasibility is established, and regulatory approval is deemed probable.
  • Marketing Expenditure: Once development criteria are met, marketing costs (e.g., sales force training, market research) should be expensed, not capitalised.
  • Development of New Functionality: Costs to add new functionality that requires new regulatory approval should not be capitalised until feasibility is confirmed.
  • Alternative Indications: Development costs for alternative indications should be capitalised only if the criteria for capitalisation are met, and if the market potential is sufficient.
  • Performance Comparisons: Costs for performance comparisons after commercial production should be treated as marketing expenses.
  • Small Patient Groups: Development costs for drugs targeting small patient groups may be capitalised if regulatory approval is obtained and other criteria are met, but market potential concerns may trigger impairment assessments.

• Impairment Indicators:

  • For intangible assets: Changes in market conditions, technological obsolescence, and legal factors.
  • For property, plant, and equipment (PPE): Obsolescence, damage, and changes in use or market conditions.

• Amortisation:

  • Amortisation methods and useful lives of intangible assets must be assessed based on the nature of the asset and expected usage.
  • Indefinite-lived intangible assets are not amortised but are subject to annual impairment testing.

• Exchange of Intangible Assets:

  • Intangible assets can be exchanged for non-monetary or monetary assets.
  • The cost of the acquired intangible asset is measured at fair value unless the exchange lacks commercial substance or fair value cannot be reliably measured.

2. Manufacturing

• Trial Batches: Trial batches used in development should be treated as inventory if they are intended for sale or use in production.
• Validation Batches: Validation costs are generally expensed unless they are directly attributable to creating a marketable product.
• Pre-launch Inventory: Inventory produced before regulatory approval is not capitalised and should be expensed unless it is expected to be sold.
• Vaccine Cultures: Costs associated with vaccine cultures are considered part of the manufacturing process and should be accounted for accordingly.

3. Funding for R&D

• Capitalisation of Interest: Interest on loans used to fund R&D can be capitalised if the loan is specifically for R&D and the project is capitalised.
• Government/Charitable Funding: Funding received from government or charitable sources may be treated as grants and not capitalised unless specific conditions are met.
• Venture Capital Funding: If a venture capital company funds Phase III through a new company, the accounting treatment depends on the structure and control of the entity.

4. Business Combination

• Acquisition of a Single Compound: The cost of the compound is capitalised, and any associated costs are expensed.
• Transfer of Scientists: Costs related to the transfer of scientists should be expensed unless they are directly attributable to the development of the asset.
• Acquired IPR&D: Intellectual property rights and development costs acquired in a business combination should be assessed for capitalisation based on the same criteria as internal development.

5. Revenue - IAS 18

• Development Services Contracts: Revenue is recognised when the performance obligation is satisfied.
• Upfront and Contingent Payments: Revenue recognition depends on the satisfaction of performance obligations and the collectibility of payments.
• Out-licensing: Revenue is recognised when the performance obligation is satisfied and collectibility is probable.
• Onerous Contracts: Revenue is not recognised if the entity expects to incur a loss.

6. Revenue - IFRS 15

• Development Services: Revenue is recognised when the performance obligation is satisfied.
• Out-licensing: Revenue is recognised when the performance obligation is satisfied and collectibility is probable.
• Post-development Obligations: These obligations are considered part of the contract and are accounted for in the revenue recognition process.
• Pay-for-Performance Arrangements: Revenue is recognised when the performance is achieved and the entity has the right to receive payment.
• Long Payment Delays: Revenue recognition is based on the entity's ability to collect payments, and historical delays may affect this.

7. Presentation and Disclosure

• Promotional Campaigns: Costs related to promotional campaigns should be expensed unless they are directly attributable to the development of an intangible asset.
• Advertising and Promotion Costs: These are generally expensed and not capitalised.
• Free Samples: The cost of free samples is treated as a sales expense.
• Co-promotion Royalties: These should be classified as either revenue or expense depending on the nature of the arrangement.
• Segmental Reporting: R&D and development services should be reported in the appropriate segments to provide transparency.

Conclusion

The document emphasizes that while IFRS provides a framework for accounting in the pharmaceuticals and life sciences industry, the application of these standards requires careful judgment due to the unique nature of R&D and intangible assets. Companies must evaluate each situation based on the specific facts and circumstances, and consider the implications of regulatory approval, market potential, and the nature of the development process when determining capitalisation, amortisation, and revenue recognition. Consistent application of IFRS in this sector is essential for transparency and comparability in financial reporting.