FASB Guidance Details How to Recognize R&D Milestone Payments


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.

 

Where to find January’s flipbook issue

Starting this month, all Association magazines — the Journal of Accountancy, The Tax Adviser, and FM magazine (coming in February) — are completely digital. Read more about the change and get tips on how to access the new flipbook digital issues.

SPONSORED REPORT

Get your clients ready for tax season

Upon its enactment in March, the American Rescue Plan Act (ARPA) introduced many new tax changes, some of which retroactively affected 2020 returns. Making the right moves now can help you mitigate any surprises heading into 2022.