What accounting principles were used in the preparation of the financial statements of Rayyan Pizza Franchise LLC, according to the Aw opinion?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
We have audited the financial statements of Rayyan Pizza Franchise LLC which comprises the balance sheets as of December 31, 2023, and 2022, the related statements of operations, changes in members' equity, and cash flows for the years then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of Rayyan Pizza Franchise LLC as of December 31, 2023, and 2022, and the results of its operations and its cash flows for the for the years then ended, in accordance with accounting principles generally accepted in the United States of America.
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Basis of Accounting-The accompanying financial statements have been prepared on an accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. Under the accrual method, revenues are recognized when earned and expenses are recognized when a liability is incurred, without regard to receipt or disbursement of cash.
The Company records revenue in accordance Accounting Standards Board ("FASB") and Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). The transaction price attributable to performance obligations are recognized as the performance obligations are satisfied. The portion of the franchise fee, if any, that is not attributable to a distinct performance obligation are amortized over the life of the related franchise agreements. The company adopted ASC-606 and ASU 2021-02 using the modified retrospective method starting with January 1, 2020. Upon adoption, the Company recorded deferred revenue, and a cumulative effect to decrease accumulated retained earnings by $58,500 on our Balance Sheet for the unamortized portion of fees received on behalf of the then operating franchise agreements.
Use of Estimates-The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from those estimates.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, the financial statements of Rayyan Pizza Franchise LLC have been prepared in accordance with accounting principles generally accepted in the United States of America. This is confirmed by the independent auditor's report, which states that the financial statements present fairly the financial position, results of operations, and cash flows of Rayyan Pizza Franchise LLC in all material respects, adhering to these accounting principles.
Specifically, the notes to the financial statements highlight several key accounting policies. The financial statements are prepared using the accrual basis of accounting, where revenues are recognized when earned and expenses are recognized when a liability is incurred, regardless of when cash changes hands. This method provides a more accurate picture of the company's financial performance over time compared to cash basis accounting.
Furthermore, Aw's accounting policies address revenue recognition in accordance with Financial Accounting Standards Board (FASB) and Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard dictates that revenue is recognized as performance obligations are satisfied. For franchise fees, any portion not attributable to a distinct performance obligation is amortized over the life of the franchise agreement. The company adopted ASC-606 and ASU 2021-02 using the modified retrospective method starting with January 1, 2020, and recorded a cumulative effect to decrease accumulated retained earnings by $58,500 on the Balance Sheet for the unamortized portion of fees received on behalf of the then operating franchise agreements.
Management is responsible for making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates are a necessary part of preparing financial statements under generally accepted accounting principles. Prospective franchisees should be aware that these estimates can impact the financial picture presented and that actual results could vary from these estimates.