How often are deferred tax assets reviewed for recoverability by Checkers?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company accounts for income taxes in accordance with the provisions of ASC 740, Income Taxes, which requires the Company to recognize income tax benefits and expense of the changes in income tax assets and liabilities. Deferred tax assets must be reduced by a valuation allowance in certain circumstances. Realization of deferred tax assets is dependent on generating sufficient taxable income prior to the expiration of any tax attributes. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are adjusted as necessary.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers's 2025 Franchise Disclosure Document, the company reviews its deferred tax assets periodically for recoverability. This means Checkers assesses whether it is likely they will be able to use these assets in the future to reduce their tax obligations. As part of this review, Checkers also adjusts valuation allowances as necessary. Valuation allowances are used to reduce the value of deferred tax assets if it is determined that some portion of the asset is unlikely to be realized.
For a prospective Checkers franchisee, this periodic review and adjustment of valuation allowances is important because it can impact the company's financial statements. Deferred tax assets can be a significant component of a company's assets, and changes in their value can affect reported earnings and financial ratios. This could influence a franchisee's perception of the financial health and stability of Checkers.
The FDD indicates that these reviews consider factors such as cumulative losses over the past three years. If Checkers has experienced losses, it may be more likely that they will need to reduce the value of their deferred tax assets. This is a common practice in accounting, as companies are required to recognize potential losses when they become probable.
Overall, the periodic review of deferred tax assets is a standard accounting practice. It ensures that Checkers's financial statements accurately reflect the company's financial position and potential future tax benefits. Franchisees should be aware of these accounting practices and how they can impact the company's reported financial results.