What was the impact on the consolidated financial statements and related disclosures when Checkersrallys adopted the pronouncement effective January 3, 2023 regarding the current expected credit loss impairment model?
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
(Tabular Dollars in Thousands, Except Share and per Share Data)
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 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 a new accounting pronouncement regarding credit loss impairment effective January 3, 2023. This pronouncement relates to Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-13, which concerns financial instruments and credit losses. This update introduces the current expected credit loss (CECL) model, replacing the previous incurred loss model. The CECL model requires measuring credit losses based on past events, current conditions, and reasonable forecasts.
Under the CECL model, financial assets like trade receivables that are measured at amortized cost must be presented at the net amount expected to be collected. This involves deducting an allowance for credit losses from the amortized cost basis. The allowance should reflect management's current estimate of expected credit losses over the remaining life of the financial asset. The guidance is effective for annual periods beginning after December 15, 2022, and interim periods within those annual periods, using a modified retrospective transition method.
For prospective Checkersrallys franchisees, this accounting change is important to understand because it affects how the company reports its financial performance. However, in Checkersrallys's case, the adoption of this pronouncement had no material impact on its financial statements and related disclosures. This means that the change in accounting method did not significantly alter the reported financial results or require substantial additional disclosures. Franchisees can be assured that the financial statements are not materially affected by this accounting change.