When did Checkersrallys adopt the pronouncement regarding Financial Instruments - Credit Losses, effective January 3, 2023, and what was the determined impact on the financial statements?
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 company adopted the pronouncement regarding Financial Instruments - Credit Losses effective January 3, 2023. This pronouncement, also known as ASU 2016-13, sets forth a current expected credit loss impairment model for financial assets, replacing the previous incurred loss model. The guidance requires the application of a CECL model, which assesses credit losses based on historical events, current conditions, and reasonable forecasts. This model necessitates that financial assets, including trade receivables, are presented at the net amount expected to be collected, with an allowance for credit losses deducted from the amortized cost basis.
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 on its financial assets. 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 change is part of a broader effort to provide more transparent and forward-looking information about potential credit losses.
Importantly, Checkersrallys determined that the adoption of this pronouncement had no material impact on the consolidated financial statements and related disclosures. This suggests that the change in accounting standards did not significantly affect the company's reported financial position or results of operations. Franchisees can take assurance that Checkersrallys is adhering to current accounting standards, and that the adoption of these standards has not had a material impact on the company's financials.