How did Cinch I.T. adopt the new guidance regarding credit losses?
Cinch_I_T Franchise · 2024 FDDAnswer from 2024 FDD Document
On January 1, 2023, the Company adopted FASB ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which modifies the measurement of expected credit losses on certain financial instruments. The guidance requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit losses" and record an allowance that, when deducted from the amortized cost basis of the financial assets, presents the net amount expected to be collected on the financial assets. The CECL framework is expected to result in earlier recognition of credit losses and is expected to be significantly influenced by the composition, characteristics, and quality of the Company's financial instruments, as well as the prevailing economic conditions and forecasts. The Company adopted this new guidance utilizing the modified retrospective transition method. The comparative information has not been restated and continues to be reported under the accounting standards in effect in those reporting periods. The adoption of this Standard did not have a material impact on the Company's financial statements but did change how the allowance for credit losses is determined. No allowance for credit losses has been established since management has determined that the potential for credit losses is not material to the financial statements.
Source: Item 23 — RECEIPTS (FDD pages 60–269)
What This Means (2024 FDD)
According to the 2024 Cinch I.T. Franchise Disclosure Document, Cinch I.T. adopted FASB ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) on January 1, 2023. This adoption modifies how Cinch I.T. measures expected credit losses on financial instruments. The guidance mandates the use of the current expected credit loss (CECL) model to estimate lifetime expected credit losses and record an allowance. This allowance, when subtracted from the amortized cost basis of financial assets, shows the net amount expected to be collected.
The CECL framework is designed for earlier recognition of credit losses and is influenced by the composition, characteristics, and quality of Cinch I.T.'s financial instruments, as well as prevailing economic conditions and forecasts. Cinch I.T. adopted this new guidance using the modified retrospective transition method, without restating comparative information from prior reporting periods.
The adoption of this standard did not materially impact Cinch I.T.'s financial statements but changed how the allowance for credit losses is determined. As of the FDD publication, Cinch I.T. had not established an allowance for credit losses, as management determined that the potential for such losses was not material to the financial statements. For a Cinch I.T. franchisee, this means that Cinch I.T. is proactively addressing potential credit losses, but currently does not consider them to be a material risk.