Solvgen Case Study

Memorandum
To: Audit Engagement Team Manager
From: Zach Halstead, Junior Auditor
take: Due Diligence on SolvGen Inc.
Date: October 4, 2011
After reviewing some(prenominal) the research and development (R& vitamin A;D) agreement and the independence and diffusion agreement between SolvGen Inc. and Careway Pharma Inc., I have grow to the following conclusions:
Deliverables Discussion
* In accordance with codification 605-25-25, a deliverable must have objective value on a stand-al matchless soil.
* The deliverable in this agreement is the selling of max instrument sy solutions which fall below the license and distribution agreement.
* The R&D agreement does not constitute a deliverable since Careway is barred to any of the findings of SolvGens R&D department, even in the event of a SolvGen bankruptcy.
* Without much(prenominal) access to R&D research, the agreement basically has no value to Careway on a stand-alone basis.
milepost Payment Revenue Recognition
* In accordance with codification 605-28-20, a milestone is achieved if the event would result in additional wagess beingness due to the vendor.
* Therefore, the milestone payments cannot be recognized as tax revenue until the date of the first launch, when revenue is earned and more payment comes due to SolvGen from Careway.




* Since R&D does not set up a deliverable, the milestone payments are essentially an up-front payment for the license and distribution deliverable.
* Milestone payment revenue should then be spread out on a pro rata basis as products are distributed under the license and distribution agreement.
Differences under IFRS?
* Since the agreement has just one deliverable, and the agreements went into effect at the same, no material difference exists when comparing GAAP and IFRS.
* However, under IFRS, one could record revenue up-front, mainly from the milestone payments.
* This decision would stem from IAS-18, which states that revenue is recognized when future...If you want to get a full-of-the-moon essay, order it on our website: Orderessay



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