Industry Supplement | April 2021
This April 2021 edition expands on our existing ASC 606 guidance for franchisors to incorporate insights on the adoption of ASU 2021-02, which simplifies how private company franchisors analyze certain activities when determining their performance obligations in a franchise agreement.
Applicability
- Companies with franchisor operations
Relevant dates
| Effective date | Public business and certain other entities* | Other entities that had not issued (made available for issuance) financial statements as of June 3, 2020** |
|---|---|---|
Annual periods – Fiscal years beginning after |
Effective |
Dec. 15, 2019 |
Interim periods – In fiscal years beginning after |
Effective |
Dec. 15, 2020 |
Early adoption allowed in fiscal years beginning after |
Dec. 15, 2016 |
|
* (1) public business entities; (2) not-for-profits that have issued, or are conduit bond obligors for, securities that are traded, listed or quoted on an exchange or an over-the-counter market; (3) employee benefit plans that file financial statements with the SEC; and (4) other entities that issued (made available for issuance) financial statements reflecting the adoption of Topic 606 before June 3, 2020. |
||
** ASU 2020-05 deferred the effective date for those specific other entities by one year. Read our Defining Issues. |
||
| Nonpublic business entities | Effective dates |
|---|---|
Franchisors that have adopted Topic 606 |
Annual and interim reporting periods after December 15, 2020 |
Franchisors that have not yet adopted Topic 606 |
Apply transition provisions and effective dates for Topic 606 above, using the full retrospective method |
Key impacts
- Entirely new accounting model that may affect the timing of revenue recognition, in particular for upfront fees
- Sales-based royalties will usually be recognized when franchisee sales occur
- Performance obligations are the new unit of account. Upfront activities and ongoing goods or services to franchisees may be affected
- Accounting for advertising fund contributions and expenses will change for most franchisors
- New framework for assessing franchise contracts modifications and transfers
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