FinREC Comments on FASB Proposal to Clarify Collaborative Arrangements

July 26, 2018

The AICPA’s Financial Reporting Executive Committee (FinREC) issued a comment letter on June 19, 2018 on the Financial Accounting Standards Board’s (FASB) Proposed Accounting Standards Update, Collaborative Arrangements (Topic 808) —Targeted Improvements.

The comment letter supported FASB’s objective of providing targeted improvements to Accounting Standards Codification (ASC) Topic 808 to reduce diversity in practice. The proposal clarifies when certain transactions between participants in a collaborative arrangement should be accounted for as revenue under ASC 606, Revenue from Contracts with Customers.  FinREC believes the proposed changes to the scope of ASC 808 will clarify, in some instances, when transactions in a collaborative arrangements should be accounted for under ASC 606.  FinREC suggested, however, that FASB consider adding guidance to further clarify when a collaborator can be viewed as a customer for one or more transactions.

FinREC disagreed with FASB’s proposed restriction on the classification of amounts as “revenue,” recommending instead that entities should continue to be allowed to apply judgement in determining the presentation of amounts received from a collaborative partner, while providing robust disclosures currently required by both ASC 808 and ASC 606.  FinREC also recommended adding new examples that depict realistic fact patterns of collaborative arrangements in the life sciences industry.

FinREC recommended that entities be provided with at least one year to implement the standard, with an additional one-year delay for entities other than public business entities.