How Can Life Science Companies Keep up with Changes to Financial Reporting?

Accounting standards change every year. Recently, there have been monumental shifts such as operating leases being capitalized to both sides of the balance sheet, revenue recognition being fundamentally re-written, and changes to reporting convertible debt instruments, equity securities, equity method investments and certain derivatives.

Meanwhile, accounting databases and other cloud-based systems are evolving to keep up with the growing complexity.  Determining the most appropriate solutions to support your company’s financial reporting needs is more critical and cumbersome than before.

How do businesses keep up with financial reporting change?

The short answer is that depends on the structure and strength of the accounting team.

Employee Experts

A decision that every owner faces as their business grows is on the specific areas and depth of expertise to employ versus outsource.

Life science companies typically first focus on in-house expertise to develop and scale their intellectual property. Employees are technicians in the core business contributing to viability and growth before the business invests its preliminary funds in high-powered administrative personnel.

Having a deep bench of accounting and finance experts on staff to research reporting standards on the horizon or implement more robust transaction processing systems is a luxury that smaller life science companies may not be able to afford or need every month.

CPA Firms

At the opposite end of the spectrum from employee experts is a CPA firm to engage to prepare tax returns or perform audits and other special matters. These firms are great resources to have on the team, however accounting related issues are often discussed around year-end while the audit or tax service is being performed. This is often too late to correct deficiencies identified resulting in scrambling to procure help to resolve the matter.

Even if the CPA firm could help, it may need to preserve independence from the client and therefore cannot become too involved in the business.

The Solution – A Trusted Advisor

There is another alternative that eliminates the need for diverting personnel from core operations to decipher the latest Financial Accounting Standards Board pronouncement: a team of business advisors who take the time understand the company’s specific needs and already know those of the life sciences industry. A team to close the knowledge gap between the CPA firm and current staff without adding head count.

The services and resources that a trusted advisor can provide should be vast and include experience with accounting ERP systems, structuring control environments, internal audit and Sarbanes-Oxley, business acquisitions and initial public offerings, audit support and technical accounting professionals that stay abreast of recent pronouncements and understand the nuances life sciences reporting such as accounting for R&D arrangements, convertible debt and equity instruments, share-based compensation, joint ventures, collaborative arrangements, etc.

Ideally, the advisors should have a team with life science expertise assembled and ready to step in to help you through the processes and procedures needed to meet the challenge of change.

Meetings with advisors should occur at least on a monthly basis and perhaps more often. As the business grows, undoubtedly the needs do as well. A key benefit of working with a trusted advisory team is the scalability of talent over a broad range of business needs such as human resources and forensic accounting.

If any type of accounting and financial reporting changes are keeping you awake at night, PBO Advisory Group is here to help.

Please contact Josh Siler, CPA, our Senior Manager, Business Advisory Services, for more information.

Josh Siler, CPA
Senior Manager, Business Advisory Services