How did Canine Dimensions implement the ASU-2016-13 accounting standard, and what transition method was used?
Canine_Dimensions Franchise · 2025 FDDAnswer from 2025 FDD Document
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes the existing transaction and industry-specific revenue recognition guidelines. The new guidance requires the recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Originally the ASU was effective for fiscal years beginning after December 15, 2018 however due to the worldwide pandemic, implementation was delayed a year.
Note 5 Franchise Revenue Recognition (Continued)
After assessing the recent guidance, the Company concludes the use of brand name and logo and ongoing access to the operating procedures manual as the core components of the franchise license. The Company further concludes the initial training services and territory fee are distinct performance obligations that are one-time in nature and completed upon such date that franchisee's training is completed.
Therefore, the Company concludes that the franchise agreement includes distinct performance obligations for the use of its brand name and logo, supported by marketing and other support services, for the life of each ten-year franchise agreement, while the obligations of th
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2025 FDD)
The 2025 Franchise Disclosure Document for Canine Dimensions discusses the implementation of accounting standards, but it refers to ASU 2014-09, not ASU 2016-13, which addresses leases. According to Note 5 regarding Franchise Revenue Recognition, Canine Dimensions adheres to ASU No. 2014-09, Revenue from Contracts with Customers. This standard supersedes previous transaction and industry-specific revenue recognition guidelines. The core principle of ASU 2014-09 is that revenue recognition should reflect the transfer of promised goods or services to customers in an amount that represents the consideration the company expects to receive in exchange for those goods or services. The implementation of this standard was originally set for fiscal years after December 15, 2018, but it was delayed by a year due to the worldwide pandemic.
Canine Dimensions has determined that the core components of the franchise license are the use of the brand name and logo, along with ongoing access to the operating procedures manual. The company also considers initial training services and the territory fee as distinct performance obligations that are one-time in nature and completed when the franchisee's training is finished. Therefore, Canine Dimensions recognizes that the franchise agreement includes distinct performance obligations for the use of its brand name and logo, supported by marketing and other support services, for the life of each ten-year franchise agreement.
Because the FDD excerpt does not mention ASU 2016-13, a prospective franchisee should ask Canine Dimensions about their policies and procedures for lease accounting and how they comply with ASU 2016-13, especially if the franchisee anticipates entering into any lease agreements as part of their business operations. Understanding how Canine Dimensions handles lease accounting can help a franchisee better manage their financial obligations and ensure compliance with accounting standards.