What accounting model did ASU 2016-13 replace for Checkersrallys?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses that sets forth a current expected credit loss impairment model for financial assets, which replaced the current incurred loss ("CECL") model, and in 2018 and 2019 issued amendments and updates to the new standard. The amended guidance requires the application of a CECL model, which measures credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. This model requires a financial asset (or group of financial assets), including trade receivables, measured at amortized cost to be presented at the net amount expected to be collected with an allowance for credit losses deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset. This guidance is effective for annual periods beginning after December 15, 2022, and interim periods within those annual periods using a modified retrospective transition method. The Company adopted this pronouncement effective January 3, 2023 and determined that it had no material impact on the consolidated financial statements and related disclosures.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, titled Financial Instruments - Credit Losses, in June 2016. This update introduced a current expected credit loss (CECL) impairment model for financial assets.
This new CECL model replaced the existing current incurred loss model. The CECL model requires measuring credit losses based on historical events, current conditions, and reasonable forecasts. It mandates that financial assets, including trade receivables, be presented at the net amount expected to be collected, with an allowance for credit losses deducted from the amortized cost basis. This allowance should reflect management's current estimate of credit losses expected over the remaining life of the financial asset.
This guidance was effective for annual periods beginning after December 15, 2022, including interim periods within those annual periods, using a modified retrospective transition method. Checkersrallys adopted this pronouncement effective January 3, 2023, and determined that it had no material impact on its financial statements and related disclosures. For a Checkersrallys franchisee, this means that Checkersrallys has updated its accounting practices to comply with the latest standards for recognizing and measuring credit losses, though this change did not significantly affect their financial reporting.