As clinical activity ramps up, so does scrutiny—from auditors, boards, and investors. For finance leaders of life sciences and medical device companies, few areas generate more complexity than accruing for clinical trial costs at period end. Invoices often lag the actual work performed, Clinical Research Organization (“CRO”) reporting can be inconsistent, and patient activity varies month to month—making complete and accurate accruals challenging.
Yet precision matters. Clinical trial accruals typically represent a material portion of R&D expenditures. Errors in this area can lead to audit adjustments, or credibility issues during an acquisition, a financing transaction, or IPO prep.
This guide is based on my experience in providing life science consulting and audit services to dozens of companies. It outlines common challenges and proven practices to help life sciences and medical device companies improve their clinical accrual process and strengthen financial controls as they scale.
Why Clinical Trial Accruals Are So Challenging
Clinical trial expenses don’t follow the standard “invoice-and-pay” rhythm. Services like patient screening, site visits, lab work, and CRO project management may occur steadily, but invoices are often delayed or milestone-based.
That means you need to estimate expenses incurred—even when no bill has arrived yet.
Furthermore, the timing of milestone payments often does not match the timing of expense recognition.
1. Delayed and Inconsistent CRO Reporting
CROs are invaluable for managing trials, but they’re often less disciplined when it comes to timely cost visibility. Monthly activity reports—if provided at all—may be incomplete or lagging.
What to do: Negotiate up front for clear, recurring reporting on patient enrollment, site activity, and milestone progress. Even simple trackers can form the basis of sound accruals.
2. Milestone Payments vs. Service Timing
Many CRO contract payments are milestone-based. But GAAP requires that expense recognition align with when the services are provided—not when the milestone is billed.
Example: Consider a single $120,000 milestone tied to study completion, backed by an appendix budget that breaks down the costs as:
- Site preparation: 25% → $30,000
- Patient visits: 75% → $90,000
The work actually occurs over four months:
- Month 1: Site preparation
- Months 2–4: Patient visits
Accruals by month:
- Month 1: $30,000 (site prep)
- Months 2–4: $30,000 each (patient visits)
By using the contract’s budget appendix and the real-world timeline, you record the $120K in accordance with when the actual services are rendered—rather than booking a lump sum only when the invoice arrives.
3. Patient Activity Is Unpredictable
Even with a detailed protocol, real-world patient behavior can vary widely by site and phase. If you’re using a flat estimate for monthly trial costs, you’re likely missing the mark.
Best practice: Tie accruals to actual patient visits, procedures, or site activity data. You may need to work across multiple systems—or directly with clinical operations—to compile this.
4. Disconnect Between Accounting and Clinical Teams
Accounting teams aren’t always looped into operational trial details. If accounting doesn’t know when a site went live or how many patients were screened this month, the accrual will be a guess.
Fix: Establish a standing monthly process between finance and clinical operations. A short sync call can yield critical data points, such as:
- Sites activated
- Patients enrolled
- Visits completed
- Protocol changes that affect scope or cost
5. Lack of Documentation for Audit Support
Auditors are looking for clear and reliable documentation. If accruals are based on spreadsheets with no source data, no version control, and no review trail, you may face pushback.
What works:
- Detailed accrual workbook
- Archived source documents (CRO reports, site logs)
- Management sign-off each period
- Reconciliations against actual invoices and true-ups
A Practical Framework for Clinical Trial Accruals
For companies in the life sciences space preparing for an audit, this isn’t just a compliance exercise—it’s risk management. Here’s a simplified framework we’ve seen work well:
- Map Key Contracts – Note rate structures, billing milestones, and scope of services.
- Track Activity Monthly – Work with clinical operations or CROs to track patient activity and services rendered.
- Build a Central Workbook – Estimate monthly expenses using consistent logic and inputs.
- Reconcile and True-Up – Adjust estimates as invoices arrive and refine your methodology over time.
- Maintain an Audit Trail – Save everything: reports, assumptions, versions, and review notes.
Final Thought: Strong Accounting Builds Credibility
Investors, boards, and auditors all expect precision—especially when R&D costs represent the majority of your expenditures. Accurately accruing for clinical trial activity doesn’t just check a box; it builds trust and supports better business decisions.
If your company is scaling up trials or preparing for its first audit, it may be time to invest in expert CPA services to review your accrual process. Small changes in visibility and structure can have a big impact on your financial accuracy—and your audit outcome.
Want to talk about what a good process could look like for your team? I’m always happy to share what I’ve seen work well for my clients navigating clinical trial accruals. Contact me today.