When did Exit adopt the CECL standard?
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, the company adopted the CECL (Current Expected Credit Loss) standard on January 1, 2023. This adoption involved implementing FASB ASU 2016-13, which pertains to financial instruments and credit losses. The new standard replaced the incurred loss method with an expected loss method for measuring financial assets.
Under the CECL method, Exit is required to estimate credit losses over the life of its financial assets, considering historical experience, current conditions, and reasonable forecasts. This primarily affects the measurement of accounts receivable, which are now presented with an allowance for credit losses to reflect the net amount expected to be collected. Exit adopted the standard using a modified retrospective approach, but there was no transition adjustment related to this adoption.
For a prospective Exit franchisee, this means that Exit's financial statements reflect a more forward-looking approach to accounting for potential credit losses. While the impact of adopting CECL was not considered material to Exit's financial statements, franchisees should be aware that this standard could affect how Exit manages and reports its accounts receivable and potential credit losses. Understanding these accounting practices can provide franchisees with a clearer picture of Exit's financial health and risk management strategies.