What approach did Checkers use during the transition to recognize and measure leases, and what did this approach allow them to avoid?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
ase payments ("lease liability").
At inception of a contract, the Company determines whether the contract contains a lease. The Company evaluates its contracts to determine if the contracts convey the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration.
During transition, a lessee and a lessor recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach and therefore is not required to adjust its comparative prior period financial information for effects of the standard or make the new required lease disclosures for periods prior to adoption. The modified retrospective approach includes a number of optional practical expedients. These practical expedients relate to identifying and classifying leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. ASU 2018-11, Leases, was issued in June 2018, which also permits entities to choose to initially apply ASU 2016-02, Leases, at the adoption
(Tabular Dollars in Thousands, Except Share and per Share Data)
date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In June 2020, Topic 842 was amended to allow entities to elect to postpone adoption until fiscal years beginning after December 15, 2021
The Company adopted this new standard on January 4, 2022 and elected to apply the provisions of this standard to the beginning of the period of adoption, with certain practical expedients available.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers's 2025 Franchise Disclosure Document, during the transition to recognize and measure leases, Checkers used a modified retrospective approach at the beginning of the earliest period presented. By using this approach, Checkers was not required to adjust its comparative prior period financial information for the effects of the standard or make the new required lease disclosures for periods prior to adoption.
The modified retrospective approach that Checkers adopted included several optional practical expedients. These expedients related to identifying and classifying leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset.
Checkers adopted the new standard on January 4, 2022, and elected to apply the provisions of this standard to the beginning of the period of adoption, using certain practical expedients. Checkers elected to account for existing capital leases and operating leases as finance leases and operating leases, respectively, without reassessing whether the contracts contain leases under the new standard, whether the classification of capital leases or operating leases would be different, or whether the unamortized initial direct costs before transition adjustments would have met the definition of initial direct costs in the new guidance at lease commencement. Checkers also elected to use hindsight in determining the lease term and in assessing impairment of the Company's right-of-use assets.