What is Cr3 American Exteriors' policy regarding loss contingencies that are considered 'remote'?
Cr3_American_Exteriors Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company may be subject to various claims, legal actions and complaints arising in the ordinary course of business. In accounting for legal matters and other contingencies, the Company follows the guidance in ASC Topic 450 Contingencies, under which loss contingencies are accounted for based upon the likelihood of incurrence of a liability. If a loss contingency is "probable" and the amount of loss can be reasonably estimated, it is accrued. If a loss contingency is "probable" but the amount of loss cannot be reasonably estimated, disclosure is made. If a loss contingency is "reasonably possible," disclosure is made, including the potential range of loss, if determinable. Loss contingencies that are "remote" are neither accounted for nor disclosed. In the opinion of management, all matters are of such kind, or involve such amounts, that unfavorable disposition, if any, would not have a material effect on the financial position of the Company.
Source: Item 23 — RECEIPTS (FDD pages 53–150)
What This Means (2025 FDD)
According to Cr3 American Exteriors' 2025 Franchise Disclosure Document, the company's policy regarding loss contingencies considered "remote" is that they are neither accounted for nor disclosed. This policy is based on the guidance in ASC Topic 450 Contingencies, which Cr3 American Exteriors follows for accounting for legal matters and other contingencies. This means that if a potential loss is deemed unlikely to occur, Cr3 American Exteriors does not record it as a liability or provide any information about it in their financial statements.
This approach is standard accounting practice. Loss contingencies that are probable and can be reasonably estimated are accrued, meaning they are recorded as liabilities. If probable but not reasonably estimable, they are disclosed. If reasonably possible, they are disclosed along with a potential range of loss, if determinable. Only remote loss contingencies are excluded from both accounting and disclosure.
Cr3 American Exteriors' management believes that any unfavorable outcomes from claims, legal actions, or complaints would not have a material effect on the company's financial position. This statement suggests that while the company may face such issues, they are not expected to significantly impact its financial health. A prospective franchisee should consider this in the context of their own risk tolerance and seek further clarification from Cr3 American Exteriors regarding the types and potential magnitude of claims or legal actions the company might face.