Life Sciences & Pharmaceuticals

Research and development costs are expensed as incurred under ASC 730. Tangible assets with alternative future uses (lab equipment, facilities) are capitalized and depreciated, with the depreciation charged to R&D while used there. Nonrefundable advance payments for future R&D services are capitalized and expensed as the services are performed. Milestone payments to in-license pre-approval compounds are R&D expense when incurred in an asset acquisition context, because pre-approval IPR&D acquired outside a business combination with no alternative future use is expensed. Groups reporting into IFRS parents face a recurring difference: IAS 38 requires capitalizing development costs once its criteria are met, so the US GAAP books and the group package diverge by design, not error.

What we do: We set the R&D policy, and for groups reporting to IFRS parents we maintain the US GAAP books and a documented bridge to the group package.

Build the accrual bottom-up per study: contracted cost per patient and per site activity, multiplied by actual enrollment, screening, and visit data from the CRO and trial management systems, plus site activation and close-out fees as those events occur, reconciled against CRO budget reports and change orders. Percentage-of-effort on the total budget is a check, not the method. Reconcile invoices received to prior accruals every close and track the true-up rate; a persistent bias in one direction is the finding auditors write. Prepaid balances at CROs get the same treatment in reverse.

What we do: We build the bottom-up accrual methodology per study and the reconciliation your auditors test hardest, and run it every close.

Identify the performance obligations first: a license that is distinct from services is its own obligation. A license to functional IP (a compound the licensee can exploit as delivered) is recognized at a point in time when control transfers; symbolic IP is over time. Development and regulatory milestones are variable consideration, included only when it is probable a significant revenue reversal will not occur, which for approval-dependent milestones usually means waiting until the event is essentially assured. Sales-based milestones and royalties on licensed IP get the royalty exception: recognized as the underlying sales occur, never estimated in advance. Collaboration arrangements add an ASC 808 screen: units of account with a vendor-customer relationship run through ASC 606, and the rest present as collaboration revenue or contra-R&D with a disclosed policy.

What we do: We write the revenue memo that separates the license, milestone, and royalty components, so several years of revenue are not misstated at once.

Apply the screen: if substantially all the fair value is concentrated in a single identifiable asset or group of similar assets, typically one lead compound, the deal is an asset acquisition. Then: no goodwill, cost is allocated on relative fair value, acquired IPR&D with no alternative future use is expensed immediately, and contingent milestone payments are generally recognized when the contingency resolves (then as R&D expense pre-approval, or capitalized post-approval). If the deal fails the screen and includes an organized workforce plus substantive processes, it is a business combination: IPR&D is capitalized as an indefinite-lived intangible tested for impairment, contingent consideration sits at fair value with remeasurement through earnings, and goodwill absorbs the residual. Model both outcomes before signing, because the LOI structure often decides the screen.

What we do: We run the screen and write the memo at signing, modeling both outcomes, so the deal structure and the accounting are decided together.

The target is usually the accounting acquirer, so the deal is a reverse recapitalization: the historical statements become the biotech’s, restated to PCAOB audit standard, with share counts recast by the exchange ratio. Pre-close instruments (SAFEs, convertible preferred, bridge notes) need classification memos before the auditors arrive, and PIPE warrants and earnouts run the ASC 815-40 analysis. Post-close, the reporting rhythm centers on burn: going-concern evaluation each period against the twelve-month window, clinical accruals as the dominant estimate, and stock compensation with 409A-supported valuations that the SEC examines against the deal price. Cash runway disclosure in MD&A must reconcile to the going-concern conclusion.

What we do: We handle the PCAOB audit uplift, the pre-close instrument memos, the reverse recapitalization, and the going-concern and runway disclosure through the listing.

Approval and milestone triggers are performance conditions: measure grant-date fair value ignoring the condition, and recognize expense when vesting becomes probable, which for binary regulatory events often means a cliff of expense in the achievement period, with catch-up for prior service. Share-price triggers are market conditions: build them into grant-date fair value (Monte Carlo) and recognize over the derived service period regardless of outcome. IPO or change-of-control triggers are performance conditions generally not probable until the event occurs. For pre-IPO companies, keep contemporaneous 409A valuations and be ready to bridge grant-date values to the offering price, because the staff asks in nearly every life sciences registration.

What we do: We document the vesting analysis for each award and keep the 409A support and grant-to-offering bridge the SEC asks for in every life sciences registration.

Run US GAAP as the system of record and maintain a documented conversion bridge to the group framework: R&D capitalization, pension measurement, and lease differences recur every close. Intercompany license fees, cost-sharing, and distribution arrangements are related-party transactions with full ASC 850 disclosure, priced under a transfer pricing policy the tax provision must actually follow: ASC 740 here means uncertain tax position analysis on intercompany pricing, correct treatment of GILTI-adjacent flows from the US side, and return-to-provision discipline across two filing calendars. Build the group reporting package to the parent’s close timetable, usually days faster than a US-only close, and automate the recurring adjustments.

What we do: We run the US GAAP close, the group reporting package, and the audit coordination across both calendars, and automate the recurring adjustments.