What accounting standard regarding credit loss measurement did Chesters adopt?
Chesters Franchise · 2025 FDDAnswer from 2025 FDD Document
In June 2016, the FASB issued guidance ASC 326, Current Expected Credit Loss Standard (CECL), which significantly changed how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The most significant change in this standard is a shift from the incurred loss model to the expected loss model. Under the standard, disclosures are required to provide users of the financial statements with useful information in analyzing an entity's exposure to credit risk and the measurement of credit losses. Financial assets held by the Company that are subject to the guidance in FASB ASC 326 were trade accounts receivable. The Company adopted the standard effective January 1, 2023. The impact of the adoption was not considered material to the financial statements.
Source: Item 21 — **FINANCIAL STATEMENTS (FDD page 48)
What This Means (2025 FDD)
According to Chesters's 2025 Franchise Disclosure Document, the company adopted ASC 326, the Current Expected Credit Loss Standard (CECL), in January 1, 2023. This standard significantly changed how entities measure credit losses for most financial assets. The most significant change involves shifting from an incurred loss model to an expected loss model.
Under ASC 326, Chesters is required to provide disclosures that give financial statement users useful information for analyzing the company's exposure to credit risk and the measurement of credit losses. The financial assets held by Chesters that are subject to this guidance are trade accounts receivable.
The adoption of this standard was not considered material to Chesters's financial statements. This means that while the change in accounting method was necessary, it did not have a significant impact on the overall financial position or reported results of the company. For a prospective franchisee, this indicates that Chesters is keeping up with current accounting standards and that the change did not negatively impact the company's financials.