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Revenue recognition for franchisors

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Franchisors may be in for major changes in the way they recognize franchise revenues in the future. For years, relevant U.S. generally accepted accounting principles (GAAP) had been subject to significant interpretation across the industry, primarily because the standards were broadly written—leaving them open to interpretation and subject to judgment. However, in May 2014, the Financial Accounting Standards Board (FASB), the organization that establishes U.S. GAAP, issued a new standard intended to converge U.S. GAAP and International Financial Reporting Standards (IFRS).

The new Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), is far more detailed than previous standards and its effects will depend on the franchisor’s operating model and how they have been interpreting the current guidance.

Despite the fact that the new standards are not effective until 2018 or 2019 for public and all other entities, respectively, it is never too early to begin assessing and evaluating the impact Topic 606 may have on your organization. While the severity of changes to a franchisor’s current revenue recognition practices will vary, one thing is certain: Nearly all franchisors will see changes upon adoption of the new guidance. Start the conversation today by contacting your accountant or an RSM representative.

For a complete list of all of the pending and finalized changes to the new guidance, refer to our summary, Revenue recognition: In motion.

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