When did Best Western adopt the FASB's ASU No. 2016-13 guidance on financial instruments?
Best_Western Franchise · 2025 FDDAnswer from 2025 FDD Document
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which changes the impairment model for most financial assets. The ASU introduces a new credit loss methodology, Current Expected Credit Losses ("CECL"), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. Since its original issuance in 2016, the FASB has issued several updates to the original ASU. The CECL framework utilizes a lifetime "expected credit loss" measurement objective for the recognition of credit losses for loans, held-to-maturity securities and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. The methodology replaces the multiple existing impairment methods, which generally require that a loss be incurred before it is recognized.
As it relates to available-for-sale securities, the same credit loss model cannot apply because there are different measurement attributes. The measurement attribute for available-for-sale debt securities necessitates a separate credit loss model because an entity may realize the total value of the securities either through collection of contractual cash flows or through sales of the securities.
On December 1, 2023, the Company adopted the guidance using the modified retrospective approach. The Company has not restated comparative information for 2023 and, therefore, the comparative information for 2023 is reported under previous guidance and is not comparable to the information presented for 2024. The adoption of this standard resulted in no adjustment to retained earnings at December 1, 2023.
Source: Item 23 — Receipts (FDD pages 108–413)
What This Means (2025 FDD)
According to Best Western's 2025 Franchise Disclosure Document, Best Western adopted the FASB's ASU No. 2016-13 guidance on financial instruments on December 1, 2023. This adoption was implemented using the modified retrospective approach.
The ASU No. 2016-13, issued in June 2016, pertains to "Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and changes the impairment model for most financial assets. It introduces a new credit loss methodology called Current Expected Credit Losses (CECL), which requires earlier recognition of credit losses and provides additional transparency about credit risk. The CECL framework uses a lifetime "expected credit loss" measurement for recognizing credit losses for loans, held-to-maturity securities, and other receivables when the financial asset is originated or acquired, with adjustments made each period for changes in expected lifetime credit losses. This replaces existing impairment methods that generally require a loss to be incurred before recognition.
For available-for-sale securities, a separate credit loss model is necessary due to different measurement attributes, as the entity may realize the total value through contractual cash flows or sales of the securities. Best Western did not restate comparative information for 2023, meaning that the information for 2023 is reported under previous guidance and is not comparable to the information presented for 2024. The adoption of this standard did not result in any adjustment to retained earnings as of December 1, 2023. This indicates that the transition to the new standard did not have a significant impact on the company's financial position at the time of adoption.