What accounting standard does Checkers use to account for income taxes?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company accounts for income taxes based upon the provisions of ASC 740, Income Taxes. Under the asset and liability method required by ASC 740, Income Taxes, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets must be reduced by a valuation allowance when it becomes more likely than not that they will not be realized. Realization of the deferred tax assets is dependent on generating sufficient taxable income in the periods when the deferred tax assets are available to be utilized. The Company has recorded a valuation allowance against the deferred tax assets that are not realizable under this standard. The deferred tax assets are reviewed periodically for recoverability, and valuation allowances are adjusted as necessary. Under ASC 740, Income Taxes, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense or benefit in the period that includes the enactment date.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the company accounts for income taxes based upon the provisions of ASC 740, Income Taxes. This standard uses an asset and liability method, which means Checkers recognizes deferred tax assets and liabilities for the future tax consequences related to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. These deferred tax assets and liabilities are measured using the enacted tax rates expected to be in effect when the temporary differences are recovered or settled.
Deferred tax assets are reduced by a valuation allowance if it is deemed more likely than not that they will not be realized. This realization depends on Checkers generating sufficient taxable income in the periods when these deferred tax assets can be used. Checkers has recorded a valuation allowance against deferred tax assets that are not considered realizable under this standard and reviews these assets periodically for recoverability, adjusting the valuation allowances as necessary.
Under ASC 740, Income Taxes, any changes in tax rates will affect the deferred tax assets and liabilities, with the impact recognized in the income tax expense or benefit in the period that includes the enactment date. This means that if tax rates increase or decrease, Checkers will adjust its accounting to reflect these changes in the period they become law, which could impact the company's reported income tax expense or benefit.