Health industries quarterly insights: PwC

Spotlight: Industry update

President-elect Donald Trump’s healthcare agenda

President-elect Donald Trump is expected to maintain his strong stance on deregulation and prioritize policies that address healthcare access and costs. Looking ahead, the Trump administration intends to uphold campaign promises for the health sector with four key themes:

Promote access to healthcare via market competition and transparency

Enhance flexibility and choice in healthcare to states and individuals

Focus on deregulation by reversing or modifying Biden-era policies

Enhance national security with “America first” principles

For more information on President-elect Trump’s health care agenda read our analysis of what to expect.

US Deals 2025 outlook

We’ve released our 2025 outlook on US deals. Find out more on deal trends in the second half of 2024 and the outlook for 2025 for the pharmaceutical and life sciences and health services sectors.

Reminders for 2024 year-end and Q1 2025

With the year-end fast approaching for calendar year-end companies, we highlight key reminders on accounting and reporting considerations that may impact the financial statements in the near term. We also include highlights from the AICPA & CIMA Conference on Current SEC and PCAOB Developments held December 9-11.

Rules effective for calendar year-end companies
Updates from the 2024 AICPA & CIMA Conference

Rules effective for calendar year-end companies

Segment reporting

ASU 2023-07, Segment Reporting – Improvements to Reportable Segment Disclosures will be effective for 2024 annual financial statements for calendar year-end public entities.

Refer to In Depth 2024-05 “SEC provides greater clarity on new segments guidance” for information on the segment reporting requirements for public business entities.

While the primary objective of the standard is to require disclosure of significant segment expenses, the new standard is applicable to all public entities, including those with a single reportable segment. The SEC staff has indicated that a public entity with a single reportable segment would generally be expected to report consolidated net income as its required measure of segment profit/loss under ASC 280. Any other measure of profit/loss that a single-reportable-segment entity elects to voluntarily provide that is not prepared in accordance with US GAAP or IFRS Accounting Standards (“GAAP”) would be subject to the non-GAAP disclosure guidance prescribed within Item 10(e) of Regulation S-K 10(e) and Regulation G.

Consistent with the overarching “management approach” to segment reporting in ASC 280, there is no requirement that significant segment expenses must be calculated in accordance with GAAP. However, if significant segment expenses are not calculated in accordance with GAAP, registrants should be mindful of the general financial statement requirements in Item 4.01 of Regulation S-X, which indicates, “The information required with respect to any statement shall be furnished as a minimum requirement to which shall be added such further material information as is necessary to make the required statements, in the light of the circumstances under which they are made, not misleading.”

Looking ahead to Q1 2025 quarterly financial statement requirements, the new segment standard also expands the interim disclosure requirements for segments to require nearly all of the quantitative segment disclosures that are required in annual financial statements. The reconciliation of the total of reportable segments’ revenues and assets to the consolidated totals is not required for interim periods.

Supplier Finance Programs

In September 2022, the FASB issued ASU 2022-04, Disclosure of Supplier Finance Program Obligations, which requires disclosures about supplier finance programs. While many of the disclosures were required in 2023 annual reports for calendar year-end companies, the rollforward of supplier finance program obligations is required for the first time in 2024 annual financial statements. Refer to section 11.3.1.5 of PwC’s Financial Statement Presentation Guide for more information.

Please also refer to our summary of new guidance and effective dates for other guidance that may be applicable in the Form 10-K for calendar year end companies.

Updates from the 2024 AICPA & CIMA Conference

The 2024 AICPA & CIMA Conference on Current SEC and PCAOB developments took place on December 9th through 11th. This annual conference features representatives from the SEC, PCAOB, FASB, and IASB, along with many other distinguished speakers from the accounting profession discussing both the latest financial reporting, auditing and SEC regulatory developments as well as what to expect in the coming year. For the key messages and takeaways, read our In depth 2024-07, 2024 AICPA & CIMA Conference: Current SEC and PCAOB Developments.

Regulatory and accounting updates

SEC comment letter trends
Pillar Two
Income Tax Disclosures
Disaggregation of Income Statement Expenses
Department of Education Related Party Schedule
Government grants
Determining the Acquirer in an Acquisition of a VIE

SEC comment letter trends

_{¹ This analysis was performed based on topical areas assigned by research firm Audit Analytics for comment letters publicly issued in the 12 months ended September 30, 2024 (Current Period) and the 12 months ended October 1, 2023 (Prior Period) in relation to Form 10-K and Form 10-Q filings.}

Our analysis of SEC comment letters have been updated for letters made public through September 30, 2024. It identifies the top five comment letter themes for companies in the health industries sectors and provides example comments.

The top five comment letter trends remain relatively consistent with the prior quarter. The only change is that management’s discussion and analysis and business combinations switched places.

Consistent with the prior quarter, non-GAAP measures and accounting and disclosures related to research and development (R&D) activities continue to be the top two areas of SEC staff comments for health industries companies. Regarding non-GAAP, the Staff frequently asks for a better explanation of adjustments that appear to be normal, recurring expenses and why these items are not related to the registrant’s ongoing operations.

As it relates to MD&A, the SEC Staff’s comments continue to emphasize the requirements in Item 303 of Regulation S-K, regarding the discussion and analysis of results of operations, with an emphasis on the following:

the description and quantification of each material factor, as well as offsetting factors,

unusual or infrequent events,

economic developments causing changes in results between periods,

the discussion of known trends or uncertainties (e.g., supply chain disruptions, inflation, increase in interest rates), and

critical accounting estimates, including the judgments made in the application of significant accounting policies, sensitivity to change, and the likelihood of materially different reported results if different assumptions were used.

For business combinations, the Staff’s comments focus on:

How the registrant assessed the factors to consider in determining whether a transaction was an asset acquisition or a business combination;

Why the registrant omitted certain disclosures required by ASC 805, such as amounts of post-acquisition revenues and earnings and supplemental pro forma financial information; and

Compliance with the pro forma financial information requirements of Regulation S-X Article 11 and the financial statement requirements for businesses acquired or to be acquired of Regulation S-X Rule 3-05 for significant business combinations.

The Staff continues to ask questions regarding revenue recognition, including comments around performance obligations, transaction price, variable consideration, timing or manner of control transfer, principal versus agent considerations, and disaggregated revenue disclosures.

Pillar Two

A number of jurisdictions have enacted laws designed to implement the Pillar Two global minimum tax framework, and those laws are generally first effective in 2024. To the extent a company has operations in, or nexus to, a territory that has enacted Pillar Two compliant tax laws, it will need to include any incremental taxes as part of their 2024 tax provision.

Please refer to our OECD Pillar Two country tracker for information by country.

Income Tax Disclosures

ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures Improvements to Income Tax Disclosures, applies to all entities subject to income taxes. For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15, 2024 (i.e., calendar 2025 year-end annual reports). For entities other than public business entities (non-PBEs), the requirements, which are significantly less prescriptive, will be effective for annual periods beginning after December 15, 2025 (i.e., calendar 2026 year-end annual reports). The guidance will be applied on a prospective basis with the option to apply the standard retrospectively.

The new guidance focuses on two specific disclosure areas: the effective tax rate reconciliation and income taxes paid. The rate reconciliation disclosure requirements differ for PBEs as compared to non-PBEs while the income taxes paid disclosures are the same for all entities.

The ASU requires public business entities, among other disclosures, on an annual basis, to provide a tabular effective tax rate reconciliation (using both percentages and reporting currency amounts) between:

(1) the reported income tax expense (or benefit) from continuing operations and
(2) the product of the income (or loss) from continuing operations before income taxes and the applicable statutory federal (national) income tax rate of the jurisdiction (country) of domicile using eight specific categories (if applicable), and
Subject to a 5% threshold, those eight categories must be further disaggregated by the specific foreign jurisdiction in which those effects arise.

Given the magnitude of changes to the tabular reconciliation as compared to the existing requirements, PBEs will need to consider how they will adopt the standard. Whether it is applied prospectively or retrospectively, the adoption of the ASU will necessitate consideration of the reporting entity’s processes, systems, and controls around disclosures. The foreign tax effects category, in particular, is expected to require significantly more disaggregation for most reporting entities as compared to existing disclosures.

PBEs may want to consider leveraging their 2024 data, once available, to assess the sufficiency of their processes and controls ahead of the effective date. Additionally, starting early will allow entities to assess the extent of comparability pre- and post-adoption, which may influence their selection of a transition method.

Please refer to our In Depth for further detail on this topic.

Disaggregation of Income Statement Expenses

On November 4, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires disaggregation of the expense captions presented on the face of the income statement by specific types of expenses as well as disclosures about the nature and amount of selling expenses.

While the new standard will likely impact almost every public business entity, we expect the implementation of certain requirements that are relevant to those in the health industries sectors will be more complex:

Purchases of inventory. Within the disaggregation of costs of goods sold (or a similar expense caption), companies will need to disclose an amount for purchases of inventory. Amounts may be recognized on a costs-incurred basis or an expenses-incurred basis and should exclude costs arising from a business combination, joint venture formation, or an initial consolidation of a variable interest entity that is not a business combination.

Cost-sharing arrangements. Companies that are party to certain cost-sharing arrangements, such as collaborative arrangements or funded research and development arrangements, will need to disclose expense reimbursements if those amounts are presented in an expense caption on the face of the income statement (e.g., as a reduction to R&D expense).

Selling expenses. Companies will need to disclose an amount for selling expenses, and in annual reporting periods, their definition of selling expenses.

The new guidance is effective for calendar-year public business entities in 2027 year-end financial statements and in interim periods thereafter. The requirements may be applied prospectively beginning with 2027 as a single-year presentation but retrospective application for all comparative periods, which will eventually be required, is permitted. Early adoption of the standard is also permitted.

Read our In Depth 2024-06, FASB issues new disaggregated expense disclosure requirements (DISE), for more information on the new standard and responses to frequently asked questions related to application of the guidance.

Department of Education Related Party Schedule

In October 2023, the Department of Education (ED) published new regulatory disclosure requirements for related party transactions, which apply to financial statements submitted to ED on or after July 1, 2024. These new regulations require institutions of higher education to clearly identify each related party; previously, such identification of the specific related party was included as one of the elements of possible disclosure about related party transactions. If applicable, the new regulations also require an institution to provide affirmative disclosure that it has no related party relationships and transactions to disclose.

The Department of Education requires the information addressed by the new regulatory requirements to be audited. In October 2024, in an announcement issued to remind institutions of higher education of the new requirement, ED stated that failure to comply with this requirement in financial statements submitted on or after July 1, 2024, will result in rejection of the financial statements by ED, and the institution may be subject to administrative action.

Refer to the Department of Education’s announcement for further information.

Government grants

On November 19, the FASB released an exposure draft on the recognition, measurement and presentation of government grants received by business entities. US GAAP does not currently address the accounting for government grants to business entities. As a result, entities often analogize to guidance in IFRS Accounting Standards (IAS 20), or less commonly, to the US GAAP contributions model used by not-for-profit entities the guidance on contingent gains.

The proposed guidance leverages the accounting framework in IFRS under IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. Thus, for entities that currently analogize to IAS 20, the proposal is not likely to have a significant impact on their reporting.

The principal provisions require:

That a government grant be recognized when it is probable that (1) the entity will comply with the conditions of the grant and (2) the grant will be received.
Timing of recognition of income from the grant will depend on whether the grant is related to an asset (i.e., a grant for which the primary condition is to acquire or construct a tangible nonmonetary long-term asset) or a grant related to income (i.e., all government grants not related to assets)
- For a grant related to an asset, the income from the grant will be recognized over the productive life of the asset.
- For a grant related to income, the income from the grant will be recognized in the period the conditions are met and the related expenses are incurred.

Comments on the proposal are due by March 31, 2025. The effective date of the proposed guidance will be determined based on stakeholder feedback. Please see our In Brief for further details.

Determining the Acquirer in an Acquisition of a VIE

In October, the FASB issued a proposed ASU to harmonize the evaluation of the accounting acquirer in an acquisition of a VIE that meets the definition of a business with the guidance for acquisitions of businesses held in voting interest entities. The proposal was based on a June recommendation of the Emerging Issues Task Force (EITF) as stakeholders indicated that the current guidance for determining the accounting acquirer results in a lack of comparability between transactions involving VIEs and those not involving VIEs.

Comments on the exposure draft were due by December 16, 2024.

Health industries accounting and reporting hot topics year-end webcast replay

Were you unable to attend our December 12 Health industries accounting and reporting year-end webcast? Don’t worry, we’ve got you covered. Watch the webcast replay to catch up.

Launch webcast replay

Note: Watching the webcast replay is not eligible for CPE credit.

PwC’s 2024 US Healthcare Consumer Insights and Engagement Survey

The healthcare transformation continues, propelled by cutting-edge technology and rising patient expectations. PwC’s 2024 US Healthcare Consumer Insights and Engagement Survey delves into this complex interplay of factors, from ongoing consumer concerns over affordability and access to consumers’ adoption of tech-enabled healthcare and trust in the healthcare system.

Four findings from the survey capture healthcare cost and navigation problems still in need of solutions as well as opportunities to help educate and engage consumers in preventive health and provide the care options they prefer:

28% of consumers skip, delay or stop care because they can’t afford it, a number that rises higher among Gen Z (39%) and millennials (33%).

50% of consumers ages 55-64 prefer a doctor visit over virtual visits compared to 34% of those 25-34.

65% of consumers don’t seek care until it’s urgent.

80% of consumers ages 18-34 are willing to use generative artificial intelligence (GenAI) in healthcare compared to less than 60% of consumers over age 55

To read the full report, click here.

Thought leadership

In case you’ve missed them, PwC has a podcast series for the Health Industries sector. See past episodes here.

We also have featured publications here which offer insights into the Health Industries sector.

Investing in the future of medtech requires companies to act across multiple fronts, challenging historic operating models and doubling down in 3 areas.

As climate transition intensifies, health industries leaders’ concerns are growing beyond environmental impact to the profound impact on human health. Learn more.

GLP-1s are revolutionizing weight loss treatment, leading to significant results. Find out how businesses can adapt and reinvent themselves to meet evolving consumer needs.

The DOJ has updated its expectations for compliance programs. We share five key changes and how health industry compliance leaders may respond.