For example, Audit Program 3.0 would include the following audit documentation on the Revenue Recognition in the Biotechnology industry when applying HKFRS as follows.  This documentation would typically be included in the Engagement Planning Meeting Minutes in Section C of the APM:

“ Revenue Recognition for a Mid-sized Biotechnology Company
This document provides a detailed description of how a typical mid-sized biotechnology company with about $90 million annual revenue recognizes revenue under Hong Kong Financial Reporting Standards (HKFRS). The discussion includes the proper timing of revenue recognition, the determination of the transaction price, and the relevant documents within the business operations specific to this industry that would help the accounts team recognize revenue.

1. 
   Proper Timing of Revenue Recognition
   Revenue should be recognized when the company satisfies a performance obligation by transferring a promised good or service to a customer, and the customer obtains control of the good or service. In the biotechnology industry, revenue is typically generated from various sources, such as:
   – Licensing agreements for intellectual property (IP) rights
   – Research, development, and collaboration agreements
   – Milestone payments related to the achievement of specific research, development, or regulatory objectives
   – Sales of products or services, such as biopharmaceuticals or diagnostic tests
   For each source of revenue, the timing of revenue recognition depends on the specific terms and conditions of the underlying contracts or agreements.
2. 
   Determining the Transaction Price

The transaction price is the amount of consideration the company expects to be entitled to in exchange for transferring goods or services to the customer. In the biotechnology industry, the transaction price may include fixed and variable considerations. To determine the transaction price, the company should consider the following factors:
– The agreed-upon price for each performance obligation
– Any variable consideration, such as milestone payments, that depends on the achievement of certain events or outcomes
– Any discounts, rebates, or concessions provided to the customer
– Any financing components, if applicable
The company should allocate the transaction price to each performance obligation based on the relative stand-alone selling prices of the goods or services being provided.

3. 
   Documents for Revenue Recognition
   The following documents within the business operations specific to the biotechnology industry would help the accounts team recognize revenue:
   – Licensing agreements: Contracts that grant customers the right to use the company’s IP, such as patents, copyrights, or trademarks. These agreements outline the terms and conditions, including the royalty rates, payment terms, and the duration of the agreement. Licensing revenue is recognized over the term of the agreement, usually based on the royalty rates applied to the licensee’s sales or usage of the licensed IP.
   – Research, development, and collaboration agreements: Contracts that outline the scope of R&D services or collaborative efforts provided by the company to its customers or partners. These agreements specify the project timeline, the agreed-upon fees, and any revenue-sharing arrangements. Revenue from R&D services or collaborations is recognized over the period during which the services are performed, typically using an input or output method to measure progress towards satisfying the performance obligation.
   – Milestone achievement documents: Evidence of the company’s achievement of specific research, development, or regulatory objectives, as outlined in contracts or agreements with customers or partners. Milestone payments are recognized as revenue when the specified event or outcome is achieved, provided that it is highly probable that a significant reversal of the cumulative revenue recognized will not occur.
   – Sales agreements for products or services: Contracts for the sale of products or services resulting from the company’s biotechnology efforts, such as biopharmaceuticals or diagnostic tests. Revenue from product sales is recognized when control of the product is transferred to the customer, typically upon shipment, delivery, or customer acceptance.

In summary, a typical mid-sized biotechnology company with about $90 million annual revenue should recognize revenue in accordance with HKFRS when it satisfies a performance obligation by transferring a promised good or service to a customer. The company should determine the transaction price, allocate it to each performance obligation, and use relevant documents within the business operations to ensure accurate revenue recognition. By following these guidelines and adhering to the applicable financial reporting framework, the company can ensure that revenue is recognized accurately and in a timely manner.