On September 21, 2020, the FASB issued a proposed ASU1 that would allow a franchisor2 that is not a public business entity3 (“private-company franchisor”) to use a practical expedient when identifying performance obligations in its contracts with customers (i.e., franchisees) under ASC 606.4 Under the practical expedient, a private-company franchisor that enters into a franchise agreement5 would be able to account for certain preopening services provided to a franchisee as a single performance obligation. The practical expedient is intended to reduce the cost and complexity of applying ASC 606 to preopening services associated with initial franchise fees.
FASB Proposed Accounting Standards Update (ASU), Franchisors — Revenue From Contracts With Customers (Subtopic 952-606): Practical Expedient.
See the definition of “public business entity” in Appendix A.
For titles of ASC references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”
See the definition of “franchise agreement” in Appendix A.
FASB Accounting Standards Update No. 2020-05, Revenue From Contracts With Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities.
The deferral does not apply to public business entities, public not-for-profit entities, and employee benefit plans that file or furnish financial statements with or to the SEC.
FASB Proposed Accounting Standards Codification Subtopic 952-606, Franchisors — Revenue From Contracts With Customers.
The example in the proposed ASU that illustrates how performance obligations are identified if the practical expedient is not elected would also apply to franchisors that are public business entities.