What does the auditor evaluate regarding the accounting policies used by Apricot Lane?
Apricot_Lane Franchise · 2025 FDDAnswer from 2025 FDD Document
t December 31, 2024 there were 109 franchised stores operating in the United States.
Basis of Accounting
The financial statements are prepared on the accrual method of accounting in accordance with Generally Accepted Accounting Principles in the United States of America (U.S. GAAP).
Revenue Recognition
Revenues from franchise fees are recognized when all services specified by the franchise agreement have been performed, generally when the franchisee's store opens. These services generally include site selection, lease negotiation, marketing, training of the franchisee, training of their employees, and store opening assistance. The initial franchise fee for 2024 and 2023 is $39,500, and the franchise fee for additional stores for an existing franchisee is $20,000.
Income Taxes
The Company has elected to be taxed as an S corporation for federal income tax and California franchise tax purposes. As a result, the Company does not pay federal corporate tax on its income; instead, the stockholders pay tax on their respective shares of such income. California has adopted similar provisions, except that there is a 1.5% franchise tax assessed on California taxable income and a minimum tax of $800. For income tax reporting purposes, the Company reports income on the cash basis of accounting. The Company also withholds and pays income tax in multiple states where required.
Management believes that all of the positions taken by the Company in its federal and state income tax returns are more likely than not to be sustained upon examination. The Company's tax returns are subject to examinations by the Internal Revenue Service and the state authorities, generally for three years and four years, respectively after they are filed.
Cash and Cash Equivalents
The Company considers all short-term investments that are convertible into a known amount of cash
Source: Item 23 — RECEIPTS (FDD pages 51–222)
What This Means (2025 FDD)
According to the 2025 FDD, the auditor evaluates whether Apricot Lane's financial statements are prepared using the accrual method of accounting and in accordance with Generally Accepted Accounting Principles (GAAP) in the United States. This indicates that the auditor assesses if Apricot Lane follows standard accounting practices for recognizing revenue and expenses.
Specifically, the auditor reviews how Apricot Lane recognizes revenues from franchise fees, which are recorded when all services specified in the franchise agreement have been performed, typically when the franchisee's store opens. These services include site selection, lease negotiation, marketing, franchisee training, employee training, and store opening assistance. The auditor also considers how Apricot Lane handles income taxes, given its election to be taxed as an S corporation, where stockholders pay taxes on their shares of income rather than the company paying federal corporate tax.
Furthermore, the auditor assesses how Apricot Lane defines and treats cash and cash equivalents, considering short-term investments convertible into known amounts of cash with original maturity dates of three months or less as cash equivalents. The auditor's evaluation provides assurance that Apricot Lane's financial statements are presented fairly and in compliance with established accounting standards, which is crucial for prospective franchisees to understand the financial health and reporting practices of the company.