Changes to revenue recognition for franchisors

Feb 19, 2021
Audit Financial reporting Retail Restaurant

In May 2014, the Financial Accounting Standards Board (FASB) issued new revenue recognition guidance that replaces most pre-existing revenue recognition guidance, including industry-specific guidance, in U.S. generally accepted accounting principles (GAAP). All franchisors whose financial statements are prepared in accordance with U.S. GAAP will be affected by the new guidance. To assist in understanding how a franchisor could be significantly affected by the new guidance, we have prepared a white paper, Changes to revenue recognition for franchisors, in which we discuss the following topics:

  • Evaluating the contract existence criteria
  • Identifying performance obligations in a contract, with specific considerations for Area Development Agreements (ADAs) and customer loyalty programs
  • Allocating the transaction price to the performance obligations, and determining whether the transaction price allocated to a performance obligation should be recognized as revenue over time or at a point in time
  • Accounting for sales and usage-based royalties, gift card programs and advertising funds
  • Addressing the new presentation and disclosure requirements

For a comprehensive discussion and numerous examples of applying the new guidance, refer to our publication, A guide to revenue recognition.

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