What method of transition did Carbones Pizzeria use when adopting the standard?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
Effective November 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2014-09 (Topic 606): Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Topic 605 Revenue Recognition (Topic 605). The core principle of Topic 606 is that an entity should recognize 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. To achieve this core principle, the guidance provides that an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. Topic 606 applies to all contracts with customers, except those that are within the scope of other topics within the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC"). The ASU requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates, and changes in those estimates.
The Company adopted the standard utilizing the modified retrospective method of transition and elected the practical expedient to apply the revenue standard only to contracts that were not completed as of the adoption date. The results for periods prior to November 1, 2019 were not adjusted for the new standard, and there was no cumulative effect for the change in accounting at the date of adoption.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, the company adopted Accounting Standards Update ("ASU") 2014-09 (Topic 606): Revenue from Contracts with Customers, effective November 1, 2019. This update supersedes the revenue recognition requirements in Topic 605 Revenue Recognition (Topic 605). The core principle of Topic 606 involves recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services.
To achieve this principle, the guidance outlines five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the entity satisfies a performance obligation. Topic 606 applies to all contracts with customers, except those within the scope of other topics within the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC"). The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows from customer contracts, including significant judgments, estimates, and changes in those estimates.
Carbones Pizzeria adopted the standard using the modified retrospective method of transition. They elected the practical expedient to apply the revenue standard only to contracts that were not completed as of the adoption date. This means that the results for periods before November 1, 2019, were not adjusted for the new standard. Consequently, there was no cumulative effect for the change in accounting at the date of adoption. For a franchisee, this indicates that Carbones Pizzeria made a specific choice in how they transitioned to the new accounting standard, which could affect how financial results are compared across different periods.