How does Engel & Volkers account for training services provided to the franchisee that are not brand specific?
Engel_Volkers Franchise · 2025 FDDAnswer from 2025 FDD Document
-based royalties and marketing fees are generally payable weekly.
The Company's primary performance obligations under the franchise agreement include granting certain rights to access the Company's intellectual property and a variety of activities relating to opening a franchise unit, including site selection, training and other such activities commonly referred to collectively as "pre-opening activities." The Company has determined that certain of the training provided to the franchisee is not brand specific and provides the franchisee with relevant general business information that is separate from the operation of a Company-branded franchise unit. The portion of training services provided that is not brand specific is deemed to be distinct as it provides a benefit to the franchisee and is not highly interrelated or interdependent to the access of the Company's intellectual property and, therefore, is accounted for as a separate distinct performance obligation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Franchise revenues (continued)
The Company has also determined that certain architectural shop-fitting services for the franchisees are not brand specific and include design-related work to "fit-out" the shop. This fit-out allows the space to be converted to any other real estate brokerage and is separate from the operation of a Company-branded franchise unit. The portion of shop fit-out provided that is not brand specific is deemed to be distinct as it provides a benefit to the franchisee and is not highly interrelated or interdependent to the access of the Company's intellectual property and, therefore, is accounted for as a separate distinct performance obligation.
All other pre-opening activities have been determined to be highly interrelated and interdependent to the access of the Company's intellectual property and, therefore, are accounted for as a single performance obligation, which is satisfied by granting certain rights to access the Company's intellectual property over the term of each franchise agreement.
The Company estimates the stand-alone selling price of training and fit-out services that are not brand specific using a cost plus mark-up approach.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 88)
What This Means (2025 FDD)
According to Engel & Volkers' 2025 Franchise Disclosure Document, the company distinguishes between brand-specific training and general business information provided to franchisees. Engel & Volkers considers training that is not brand-specific as a separate, distinct performance obligation. This is because this type of training benefits the franchisee independently and isn't heavily dependent on access to Engel & Volkers' intellectual property.
This distinction in accounting treatment means that Engel & Volkers recognizes revenue for non-brand-specific training differently than for other pre-opening activities. The company estimates the stand-alone selling price of training services that are not brand specific using a cost-plus markup approach. Engel & Volkers allocates initial franchise fees and fixed consideration under the franchise agreement to the stand-alone selling price of the training.
The consideration allocated to training services that are not brand specific is recognized ratably as the services are rendered. This approach ensures that Engel & Volkers recognizes revenue as it provides the training, aligning revenue recognition with the delivery of the service. This accounting treatment is also applied to architectural shop-fitting services for franchisees that are not brand specific, recognizing that these services could be used for any real estate brokerage and are thus distinct from the Engel & Volkers brand itself.