What accounting standard change led to 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 due 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 recorded for the underlying lease. This change is connected to Carls's transition to ASC 842, which is further detailed in Note 9, Leases.

In simpler terms, Carls has changed how it accounts for its leases. Previously, deferred rent was considered a liability. However, with the adoption of ASC 842, this deferred rent is now reclassified as an operating lease asset. This means that instead of recognizing a future obligation (liability), Carls now recognizes an asset related to the lease.

For a prospective franchisee, this accounting change itself doesn't directly impact day-to-day operations. However, it's important to understand that Carls's financial statements have been updated to reflect this new standard. This could affect how certain financial metrics appear, particularly those related to lease obligations and assets. Franchisees reviewing Carls's financial performance should be aware of this change to accurately interpret the data.