FASB staff paper assists with franchise fee recognition

by | Nov 13, 2018 | Best Business Helps | 0 comments

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FASB staff paper assists with franchise fee recognition

A new FASB staff paper provides information to private company franchisors as they decide how to recognize certain franchise fees under the new revenue recognition standard.

The staff paper provides implementation examples and primarily targets questions related to the use of judgment in identifying performance obligations, as requirements have changed under the new standard.

Under current GAAP, a franchisor typically recognizes an initial franchise fee when a new franchise location opens. As a result, the franchisor has not needed to assess whether pre-opening services are a separate deliverable.

Under the new revenue recognition guidance in FASB ASC Topic 606, Revenue From Contracts With Customers, the franchisor will be required to determine if the pre-opening activities contain any distinct goods or services. The FASB staff paper provides educational illustrations demonstrating how a franchisor may make these assessments.

FASB’s staff has continued to receive questions about areas of the guidance that require the application of judgment, such as identifying performance obligations. The staff paper states that the accounting outcomes in areas of judgment depend on the facts and circumstances of the arrangement, and there are no presumptions in the standard on how many performance obligations are included in certain arrangements.

The staff memo walks preparers through the requirements for identifying performance obligations and provides examples that are intended to help franchisees determine if pre-opening activities contain any distinct goods or services.

For information and resources on implementing FASB’s new revenue recognition standard, visit the AICPA’s website.

Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.

Research & References of FASB staff paper assists with franchise fee recognition|A&C Accounting And Tax Services
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