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Modern Financial Reporting as a Life-Saving Tool for Compliance in Biopharma Collaborations
Biotech financial reporting for small and mid-cap pharma and biotech companies is a challenge. Companies engage in complex collaborations and joint ventures to advance research, development, and commercialisation of new products.
These arrangements are intricate and involve multiple parties. They often share the risks, benefits, and responsibilities related to intellectual property, product development, and distribution.
These collaborations present unique accounting challenges under US GAAP and IFRS, particularly when it comes to consolidation. To meet compliance, companies must evaluate these partnerships rigorously, and this process often requires extensive analysis, which lead CFOs to pay steep fees for support from large firms.
Due to a lack of performant tools, accounting firms spend a significant amount of time building reports. Consequently, they dedicate less time to providing valuable insights.
However, specific challenges remain unresolved. As an example, determining whether they hold a “controlling financial interest” in each legal entity involved. This is particularly complex when consolidating variable interest entities (VIEs) or voting interest entities.
Assessing complex relationships between their company and partners represents a significant challenge for CFOs. They must determine the degree of control, influence, and risk absorbed by each party involved. This requires examining the level of control each entity has over financial and operational decisions.
In practice, this requires not only substantial accounting expertise but also ongoing, costly external consultations for companies without a performant ERP.
The Risks of Unresolved Consolidation Challenges
When these consolidation questions remain inadequately addressed, they lead to significant issues. Missteps in determining control or properly categorising entities within financial statements result in material misstatements. It also increases the risk of tax penalties and costly audits. Furthermore, inaccuracies in financial statements damage a company’s reputation with investors and impacts its ability to secure future funding.
For development-stage biotechs, these risks can escalate during these phases as funding comes from various sources and partnerships and it creates an even more complex landscape to determine financial control.
When companies fail to appropriately recognise their financial position and obligations, they expose themselves to reputational damage and regulatory scrutiny. This can be particularly hard to recover from in a competitive biotech industry reliant on investor trust and transparency in reporting.
The Future of Biotech Financial Reporting Compliance
To address these issues effectively, companies in the life sciences sector must implement a robust and modern ERP and streamline these consolidation processes, offering a cost-efficient alternative to external consulting.
A tailored ERP solution automates critical consolidation analyses and facilitates compliance with US GAAP and IFRS requirements and provides a clear overview of financial control across joint ventures and partnerships.
The ERP delivers real-time financial insights and empowers CFOs and finance teams with a consistent, accurate view of the company’s financial standing and control structures.
This capacity to provide timely, precise data reduces dependency on external firms for routine consolidation, allowing companies to allocate their resources toward more strategic financial activities rather than on expensive compliance tasks.
#GOATConsultants™-Level Insights:
For CFOs in small and mid-sized life sciences companies, modern ERP systems is a life-saving tool that replaces high-cost, high-effort reporting with a streamlined solution that reduces errors, minimises compliance risks and enhances decision-making capabilities.
Clear and accurate financial statements are critical for growth and investor confidence, biotech companies can’t be orphan from modern ERP solutions: it is not just a smart investment—it’s a strategic imperative.
Learn more about how modern systems can drive innovation and growth in your company’s finance and accounting operations by visiting our Change Management and Innovation page.
For more information on accounting norms, visit:
Financial Accounting Standards Board (FASB) – www.fasb.org
International Financial Reporting Standards (IFRS) – www.ifrs.org
