What accounting standards does Canopy Lawn Care follow in preparing its consolidated financial statements?
Canopy_Lawn_Care Franchise · 2025 FDDAnswer from 2025 FDD Document
ICIES (Continued)
Principles of Consolidation and Presentation (Continued)
The accompanying consolidated financial statements present the operations, equity and cash flows of OLB Holdco and its wholly-owned subsidiaries as of and for the years ending September 30, 2024, 2023, and 2022. Intercompany transactions and balances have been eliminated in consolidation.
The Company follows accounting standards set by the Financial Accounting Standards Board ("FASB"). The FASB sets accounting principles generally accepted in the United States of America ("GAAP").
Adoption of New Accounting Policies
Accounting Standards Update 2016-02, Leases
Effective October 1, 2022, the Company adopted Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). The objective of this ASU is to increase transparency and comparability in financial reporting by requiring balance sheet recognition of leases and note disclosure of certain information about lease arrangements. The Company adopted ASU 2016-02 using the modified retrospective method. This method allows the standard to be applied retrospectively through a cumulative catch-up adjustment to equity recognized upon adoption, if necessary. Adoption of ASU 2016-02 did not result in changes to the Company's beginning equity balance on October 1, 2022. Upon adoption, the Company elected to use risk-free discount rate, an option only available to private entities, when calculating the present value of future lease payments if an interest rate is not explicit in a lease agreement.
Adoption of this ASU resulted in the Company recording right-of-use ("ROU") assets of $3,397,752 and corresponding operating lease liabilities of $3,953,689 on October 1, 2022 which represents the present value of future lease payments on the Company's office and warehouse leases further detailed in Note 8 at the date of adoption. The difference in ROU asset and operating lease liability at inception is due to a deferred rent and certain tenant allowances of $555,937 at October 1, 2022 which has been netted against the ROU asset.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 55)
What This Means (2025 FDD)
According to the 2025 FDD, Canopy Lawn Care's parent company, OLB Holdco, LLC, adheres to accounting principles generally accepted in the United States of America (GAAP) as set by the Financial Accounting Standards Board (FASB). This means that the consolidated financial statements of OLB Holdco, which include Canopy Lawn Care, are prepared in accordance with GAAP standards. These standards ensure uniformity and comparability in financial reporting.
For a prospective Canopy Lawn Care franchisee, this indicates that the financial information provided in the FDD and ongoing financial reporting from the franchisor follows a consistent and widely recognized framework. This allows franchisees to better understand the financial health and performance of Canopy Lawn Care and its parent company. It also facilitates easier comparison with other franchise opportunities or businesses that also follow GAAP standards.
Furthermore, the FDD mentions the adoption of specific Accounting Standards Updates (ASU), such as ASU 2016-02 concerning leases and ASU 2013-03 regarding financial instruments and credit losses. These updates reflect changes and clarifications in accounting standards that OLB Holdco has incorporated into its financial reporting. The adoption of ASU 2016-02 resulted in recording right-of-use assets of $3,397,752 and corresponding operating lease liabilities of $3,953,689 as of October 1, 2022. The adoption of ASU 2013-03 did not have a material impact on the consolidated financial statements.
It is important for potential franchisees to review these accounting policies and updates, as they can impact the financial presentation and interpretation of Canopy Lawn Care's financial statements. Understanding the accounting standards and any recent changes helps franchisees make informed decisions about their investment and assess the financial stability of the franchise system.