Which entities are included in the consolidated financial statements of Browns Chicken?
Browns_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
The consolidated financial statements include the accounts of Brown's Chicken, LLC and Brown's Chicken, LLC – Series A (Advertising Fund). All material intercompany transactions have been eliminated in consolidation.
In January 2003, the Financial Accounting Standards Board (FASB) issued guidance on consolidating variable interest entities, including the identification of and financial reporting for entities for which control is achieved through means other than voting rights. Such entities are referred to as variable interest entities (VIEs). The members of Brown's Chicken, LLC – Series A are also the members of Brown's Chicken, LLC. ASC 810 requires that a company that holds variable interests in an entity consolidate the entity if the company's interest in the VIE is such that the company will absorb a majority of the VIE's expected losses and/or receive a majority of the VIE's expected residual returns, if they occur. In such cases, the company is the primary beneficiary of the VIE. The issuance of this accounting pronouncement, which interpreted an existing generally accepted accounting principle, caused Brown's Chicken, LLC to consider whether it should continue to issue separate financial statements or whether instead it should include the consolidated financial results of Brown's Chicken, LLC – Series A in its financial statements. Because of the common control and the fact that the Company will absorb a majority of the expected losses and/or receive a majority of the expected residual returns of Brown's Chicken, LLC – Series A, it was concluded that consolidation better presents the financial information.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 42)
What This Means (2025 FDD)
According to the 2025 Browns Chicken Franchise Disclosure Document, the consolidated financial statements include the accounts of Brown's Chicken, LLC, and Brown's Chicken, LLC – Series A (Advertising Fund). This means that the financial performance and position of both entities are combined and presented as a single economic unit. The purpose of consolidation is to provide a more comprehensive view of the overall financial health and activities of Browns Chicken.
The FDD notes that all material intercompany transactions have been eliminated during the consolidation process. This is a standard accounting practice to avoid double-counting revenues, expenses, assets, and liabilities within the consolidated group. By eliminating these transactions, the consolidated financial statements provide a clearer picture of Browns Chicken's financial performance with outside parties.
The document further explains that the decision to consolidate Brown's Chicken, LLC – Series A was based on accounting guidance related to variable interest entities (VIEs). Because the members of Brown's Chicken, LLC – Series A are also the members of Brown's Chicken, LLC, and Browns Chicken will absorb a majority of the expected losses and/or receive a majority of the expected residual returns of Brown's Chicken, LLC – Series A, it was concluded that consolidation better presents the financial information. This indicates that Browns Chicken has significant control over the advertising fund and benefits from its activities, making consolidation appropriate under accounting standards.