What accounting standard change caused the decrease in estimated liability for deferred rent, current portion and unearned rental income for Carls?

According to Carls's 2024 Franchise Disclosure Document, the decrease in estimated liability for deferred rent, current portion, and unearned rental income is attributed to the adoption of a new accounting standard. Specifically, it reflects the reclassification of deferred rent, where Carls is the lessee in the underlying operating lease, to the operating lease asset. This change is connected to Carls's transition to ASC 842. This is further explained in Note 9, Leases.

This transition to ASC 842 from ASC 840, impacts how Carls recognizes and reports its lease-related assets and liabilities. Under ASC 842, lessees are required to recognize lease assets and lease liabilities on the balance sheet for most leases, which was not the case under the previous standard. This reclassification and the recognition of lease assets affect the financial statements of Carls, providing a more transparent view of the company's leasing activities.

For a prospective franchisee, understanding these accounting changes is crucial because leases are a significant part of operating a restaurant. The shift to ASC 842 means that Carls's financial statements, which franchisees may review as part of their due diligence, will present lease obligations differently than in prior years. Franchisees should pay close attention to Note 9, Leases, in Carls's financial statements to fully understand the implications of these changes on the company's financial position and performance.