Research grants and clinical trial funding: government grant versus customer contract accounting

Research institutions receive a mix of true grants and disguised service contracts, and defaulting all clinical trial funding into IAS 20 grant treatment recognized on receipt overstates income timing and mischaracterizes what is, in substance, IFRS 15 revenue earned over the patient's participation, a distinction regulators and auditors scrutinize because it affects both the income statement line item and the period of recognition.

Does the funding provider, whether a government agency, foundation or pharma sponsor, receive an identifiable good or service in return for the payment, indicating a customer contract under IFRS 15, or is the funding an unconditional or conditions-based transfer of resources with no reciprocal service, indicating a government or institutional grant under IAS 20? Are payments structured per patient enrolled or per milestone in a way that mirrors performance obligations satisfied over time rather than a pure grant disbursement schedule? What conditions, if breached, could require repayment of amounts already received?

1) For each funding source, determine whether the funder receives an identifiable good or service in return for the payment (a customer contract, IFRS 15) or whether the transfer is unconditional or conditions-based with no reciprocal service (a grant, IAS 20). 2) For genuine government/institutional grants, recognize income on a systematic basis over the periods in which the related research costs are recognized as expenses, once reasonable assurance of compliance and receipt exists. 3) For sponsor clinical trial agreements where the sponsor receives distinct services (patient recruitment, monitoring visits, data-lock/reporting), identify the distinct performance obligations and recognize revenue as each is satisfied over the patient's participation period, not fully at enrollment. 4) Where per-patient or per-milestone payments mirror performance obligations satisfied over time, allocate the transaction price to distinct services based on relative standalone selling prices. 5) Assess and disclose any conditions, in either a grant or a service contract, that could require repayment of amounts already received. 6) Where a single funding arrangement has features of both (e.g. partial government subsidy plus a sponsor service fee), split the funding and apply the two standards separately to their respective components.

Where a grant is conditional on specific research outputs, assess whether reasonable assurance of compliance exists before recognizing grant income, matched systematically to the periods the related research costs are expensed; for IFRS 15 clinical trial contracts, allocate the transaction price to distinct services (enrollment, ongoing monitoring, close-out) based on relative standalone selling prices where the contract bundles per-patient and milestone payments, reassessing the allocation only if the contract is modified.

Disclose the nature and accounting policy for government grants versus clinical trial service revenue; present grant income separately from patient service and clinical trial revenue; disclose unfulfilled conditions and contingencies attached to grant funding; disclose the basis for allocating transaction price where a clinical trial contract bundles per-patient and milestone payments.

• Recognizing all research funding as grant income under IAS 20 without assessing whether the sponsor is in substance a customer receiving distinct trial-management services
• recognizing per-patient clinical trial payments in full upon patient enrollment rather than over the course of the patient'
• s participation and follow-up as the performance obligation is satisfied
• ignoring repayment/clawback conditions embedded in grant agreements
• failing to split a hybrid funding arrangement between IAS 20 and IFRS 15 components, applying only one standard to the whole amount.