FASB Staff Paper Assists With Franchise Revenue Recognition
The Financial Accounting Standards Board (FASB) recently announced the release of an educational FASB staff paper that provides implementation examples to help private company franchisors preparing to implement the revenue recognition standard in 2019.
“Stakeholders asked us to clarify how private company franchisors should recognize certain franchise fees when the revenue recognition standard takes effect next year,” stated FASB Chairman Russell G. Golden. “In response to their requests, the FASB staff prepared an educational paper that provides illustrations that should help these stakeholders successfully implement the standard.”
The FASB staff paper primarily targets questions related to the use of judgment in identifying performance obligations. Under current accounting guidance, a franchisor typically recognizes an initial franchise fee when a new franchise location opens. Consequently, the franchisor has not had to assess whether pre-opening services are a separate deliverable.
Under the new revenue recognition guidance, the franchisor will be required to determine if the pre-opening activities contain any distinct goods or services. To help franchisors transition to the new guidance, the FASB staff paper provides educational illustrations of how a franchisor may make these assessments.
“The FASB staff paper is one of many examples of how we’re continually monitoring and supporting the successful implementation of our standards,” added Mr. Golden. “These efforts are made possible by the valuable input provided by organizations like the International Franchise Association and its members, and we thank them for their assistance in ensuring our standards are, in fact, ‘standards that work.’”
“IFA commends the FASB for working with our members to issue educational resources that illustrate how franchise brands should recognize revenue related to initial franchise fees,” said IFA President and CEO Robert Cresanti. “This educational material will help accountants accurately apply the standard and contribute to the financial stability of franchise companies.”
The FASB staff paper, along with complete information about the revenue recognition standard, is available at www.fasb.org.