Rooted in the region. Connected globally.

Medical technology companies often combine in-house development, specialized production, and international sales structures. Accordingly, key audit issues frequently include research and development costs, the valuation of inventory, revenue recognition, provisions for warranty and product risks, and international corporate structures.

Added to this are the processes and controls underlying the financial data. Especially for growing corporate groups, it is crucial that inventory management, production, sales, and financial accounting work together reliably and that the data relevant to the annual financial statements is traceable.

For highly innovative medical technology companies, the distinction between research and development is an important accounting issue. Under the German Commercial Code (HGB), internally generated intangible fixed assets may generally be capitalized. Research expenses, however, may not be included in production costs. If the research and development phases cannot be reliably distinguished from one another, capitalization is not permitted.

In practice, therefore, it is essential—among other things—to clearly delineate development projects, to record capitalizable costs in a transparent manner, and to reliably document the start of the development phase. The useful life, subsequent valuation, and the distribution restriction associated with capitalization must also be taken into account.

For medtech manufacturers, high inventories of raw materials, components, work-in-progress, and finished goods can represent significant balance sheet items. At the same time, technological advancements, changes in sales opportunities, regulatory developments, or—depending on the product—limited shelf lives can result in individual inventory items no longer retaining their value at their original cost of production.

For the annual financial statements, the determination of production costs, coverage ratios, and holding periods, as well as slow-moving inventory and potential valuation adjustments, are therefore particularly relevant. In the audit, the quality of the underlying inventory management and production data also plays an important role.

The year-end audit is not an audit of MDR compliance or the quality management system. However, regulatory issues can have a significant impact on the financial statements.

For example, if products are recalled or withdrawn from the market, or if warranty, liability, or other obligations are anticipated, it must be assessed whether provisions or impairment charges are necessary. The recoverability of inventory or development projects may also be affected.

The interface between quality management, regulatory affairs, management, and the finance department is therefore crucial: information about significant product or market risks must be incorporated into financial reporting in a timely manner.

International sales models can complicate revenue recognition. Relevant factors may include, for example, sales through distributors, consignment inventory, return policies, off-take agreements, or contracts in which medical devices are offered together with installation, maintenance, or other services.

For accounting purposes, it must be clear when revenue is economically realized and which services actually underlie a transaction. In the case of international corporate groups, different contract models and accounting standards may also play a role.

Many medical technology companies in the region operate on an international scale—with sales subsidiaries, manufacturing facilities, suppliers, or customers in Europe, the U.S., and Asia, among other places.

When preparing annual or consolidated financial statements, this raises questions regarding the consolidation of foreign subsidiaries, reporting packages, intercompany relationships, foreign currencies, and the coordination of group-wide processes, among other issues. Tax-related matters, such as transfer pricing, can also intersect with accounting.

Through PKF Global, we can engage auditors and other specialists in the respective countries as needed. Your central point of contact will handle all coordination.

As digitalization advances, the quality of financial statements depends increasingly on the underlying systems and processes. For this reason, accounting-related processes—such as purchasing, production, inventory, sales, and financial accounting—as well as their interfaces are particularly important for the audit.

Relevant factors include, for example, access permissions, master data, automated controls, inventory movements, and the reconciliation of data from source systems into financial accounting. A reliable internal control system can not only support the audit but also increase transparency and security in financial processes.

For medical technology companies, a significant portion of the company’s value often lies in specialized expertise, products and technologies, qualified employees, customer relationships, and its international market position.

In the event of a succession or a company sale, therefore, the focus shifts not only to the company valuation but also to the quality of financial information, sustainable earnings metrics, working capital, inventory, development projects, and potential warranty, liability, or regulatory risks.

Early preparation can help create transparency and position the company well for both an intra-family succession and a potential sale.

The PKF Wulf Group supports medium-sized and family-owned medical technology companies in the Hechingen, Balingen, and Tuttlingen areas, particularly in the areas of auditing, tax consulting, and business succession.

As a member of Medical Valley Hechingen, we are well-connected within the regional medtech industry. Our primary point of contact is partner and certified public accountant André Simmack. For international matters, he can engage the appropriate specialists in the respective countries through PKF Global.