What accounting standard did Exit adopt on January 1, 2023, regarding financial instruments and credit losses?
Exit Franchise · 2025 FDDAnswer from 2025 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, and all related subsequent amendments thereto. This ASU replaced the incurred loss method of measuring financial assets with an expected loss method, which is referred to as the current expected credit loss (CECL) method. CECL requires an estimate of credit losses over the life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts. For the Company, the ASU applies to the measurement of its accounts receivable. Accounts receivable are now presented by using an allowance for credit losses to reduce the receivables balances to the net amount expected to be collected over the lives of the receivables. The Company adopted the new standard using the modified retrospective approach. For the Company, there was no transition adjustment related to the adoption of CECL.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure 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, and all related subsequent amendments. This new accounting standard replaced the incurred loss method with the current expected credit loss (CECL) method. The CECL method requires estimating credit losses over the life of financial assets, using historical experience, current conditions, and reasonable forecasts.
For Exit, this accounting standards update primarily applies to the measurement of its accounts receivable. Under the CECL method, accounts receivable are presented with an allowance for credit losses, reducing the balances to the net amount expected to be collected over the life of the receivables. Exit adopted the new standard using the modified retrospective approach.
Importantly, the FDD states that there was no transition adjustment related to the adoption of CECL for Exit. This means the change in accounting methods did not have a significant impact on the company's financial statements at the time of adoption. A prospective franchisee should be aware of how Exit accounts for potential credit losses, as this can affect the reported value of assets and the overall financial health of the company.