On January 28, 2021, the FASB issued ASU 2021-02,1 which allows a franchisor that is not a public business entity (“private-company franchisor”) to use a practical expedient when identifying performance obligations in its contracts with customers (i.e., franchisees) under ASC 606.2 When using the practical expedient, a private-company franchisor that has entered into a franchise agreement would treat certain preopening services provided to its franchisee as distinct from the franchise license. The practical expedient is intended to reduce the cost and complexity of applying ASC 606 to preopening services associated with initial franchise fees.
FASB Accounting Standards Update (ASU) No. 2021-02, Franchisors — Revenue From Contracts With Customers (Subtopic 952-606): Practical Expedient.
For titles of FASB Accounting Standards Codification (ASC or the “Codification”) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”
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 Accounting Standards Codification Subtopic 952-606, Franchisors: Revenue From Contracts With Customers.
See ASC 606-10-25-19 through 25-22.
See footnote 6.