Regarding Checkers' financial statements, what potential impact do estimates and assumptions have on the reported financial results?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
As required by ASC 842, Leases, Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, property lives, discount rates and term, all of which can impact the classification and accounting for a lease or sublease as operating or finance for leases where the Company is a lessee and operating, sale-type and direct financing for leases where the company is lessor. The amount of depreciation and amortization, interest and rent expense and income reported would vary if different estimates and assumptions were used.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the preparation of financial statements requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. This means that the financial picture presented by Checkers is not an absolute certainty but is influenced by the judgments and predictions made by the company's management.
Specifically, the FDD mentions that Accounting Standards Codification (ASC) 842, Leases, requires management to make estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including property values, property lives, discount rates and term. These estimates impact the classification and accounting for a lease or sublease as operating or finance for leases where Checkers is a lessee, and operating, sale-type and direct financing for leases where the company is lessor. The amounts of depreciation and amortization, interest, and rent expense and income reported would vary if different estimates and assumptions were used.
For a prospective Checkers franchisee, this means that some of the financial figures presented, particularly those related to leases, are based on estimates and could change. Actual results could differ from those estimates. It is important for franchisees to understand these assumptions and their potential impact when evaluating the financial viability of a Checkers franchise. Franchisees should consider this when reviewing the financial statements and potentially consult with a financial advisor to assess the sensitivity of the financial results to changes in these key assumptions.