When was the Accounting Standards Update (ASU) issued that Bombs Away references?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
Specifically for franchisors, The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) to ASC 606, Franchisors—'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient' in 2021 which provides a new practical expedient that permits private company franchisors to account for preopening services provided to a franchisee as distinct from the franchise license if the services are consistent with those included in a predefined list within the guidance. The Company has elected to adopt this new standard.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) to ASC 606, specifically for franchisors, in 2021. This update, titled 'Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient', introduces a new practical method.
This expedient allows private company franchisors like Bombs Away to account for pre-opening services provided to a franchisee separately from the franchise license itself. This is permissible if these services align with a predefined list within the guidelines. Bombs Away has chosen to adopt this new accounting standard.
For a prospective Bombs Away franchisee, this accounting update primarily affects how Bombs Away recognizes revenue related to the initial franchise fee and pre-opening services. By adopting this standard, Bombs Away can recognize revenue from certain pre-opening activities (those not brand-specific) as those services are rendered, rather than deferring the entire franchise fee recognition over the term of the franchise agreement. This could provide a more accurate reflection of the company's financial performance in the early stages of a franchise agreement.