Guidance issued Wednesday by FASB attempts to help companies determine when it’s appropriate to use the milestone method of revenue recognition for research or development transactions.
Revenue from R&D deals often hinges in whole or in part on reaching certain milestones, such as completion of phases in a drug study. Businesses often recognize these payments “as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method,” FASB says in the guidance. But confusion arose because no authoritative guidance on the proper use of the method existed..
Accounting Standards Update No. 2010-17 , Revenue Recognition—Milestone Method (Topic 605): Milestone Method of Revenue Recognition (a consensus of the FASB Emerging Issues Task Force), includes criteria for such transactions and details about disclosure requirements. It is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted.