How often are Checkersrallys' deferred tax assets reviewed for recoverability?
Checkersrallys 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. After reviewing all relevant factors, including cumulative losses during the last three years, management believes that it is more likely than not that a portion of the Company's deferred tax assets will not be realized in a future period. As of December 30, 2024 (Successor) and January 1, 2024 (Successor), the valuation allowance has been adjusted to the amount of deferred tax assets, net of reversing deferred tax liabilities, that management believes will not be realized.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the company reviews its deferred tax assets periodically for recoverability. This means that Checkersrallys assesses the likelihood of realizing these assets, which are essentially future tax benefits, and adjusts valuation allowances as necessary. These allowances reduce the value of deferred tax assets on the balance sheet if it's determined that some portion is unlikely to be realized.
For a prospective Checkersrallys franchisee, this periodic review and adjustment of valuation allowances are important because they can impact the company's financial statements. If Checkersrallys determines that a portion of its deferred tax assets is unlikely to be realized, it will record a valuation allowance, which can reduce the company's reported assets and potentially affect its profitability. This could influence investor confidence and the overall financial health of the company.
The review considers factors such as cumulative losses over the past three years and management's judgment regarding future taxable income. If Checkersrallys anticipates insufficient taxable income to utilize the deferred tax assets, the valuation allowance is adjusted accordingly. As of December 30, 2024, and January 1, 2024, the valuation allowance has been adjusted to the amount of deferred tax assets, net of reversing deferred tax liabilities, that management believes will not be realized.
While the FDD states that these assets are reviewed 'periodically,' it does not define the specific intervals (e.g. quarterly, annually). A prospective franchisee should ask Checkersrallys for more specific information about the frequency and process of these reviews to fully understand how deferred tax assets are managed and how they might impact the company's financial performance.