What practical expedient outlined in ASC 952-606 has Face Foundrie elected to adopt?
Face_Foundrie Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company is required to allocate the transaction price associated with initial franchise fees between the franchise license and associated performance obligations. In identifying the associated performance obligations, the Company has elected to adopt the practical expedient for private company franchisors outlined in ASC 952-606, Franchisors—Revenue from Contracts with Customers. In addition, the practical expedient allows franchisors to account for pre-opening services as a single distinct performance obligation, which the Company has elected to adopt. These pre-opening services include the following services (which the Company may or may not provide all of):
- Assistance in the selection of a site
- Assistance in obtaining facilities and preparing the facilities for their intended use, including related financing, architectural, and engineering services, and lease negotiation
- Training of the franchisee's personnel or the franchisee
- Preparation and distribution of manuals and similar material concerning operations, administration, and record keeping
- Bookkeeping, information technology, and advisory services, including setting up the franchisee's records and advising the franchisee about income, real estate, and other taxes about local regulations affecting the franchisee's business
- Inspection, testing, and other quality control programs
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 73)
What This Means (2025 FDD)
According to Face Foundrie's 2025 Franchise Disclosure Document, when identifying performance obligations associated with initial franchise fees, Face Foundrie has elected to adopt the practical expedient for private company franchisors outlined in ASC 952-606, Franchisors—Revenue from Contracts with Customers. This allows Face Foundrie to account for pre-opening services as a single distinct performance obligation.
These pre-opening services, which Face Foundrie may or may not provide all of, include assistance in site selection, help with facilities (including financing, architectural, and engineering services, and lease negotiation), training of personnel or the franchisee, preparation and distribution of manuals, bookkeeping, IT, advisory services (including setting up records and advising on taxes and local regulations), and inspection and quality control programs.
Prior to 2023, Face Foundrie allocated the franchise fee between the pre-opening services obligation and the franchise license, recognizing the amount allocated to the license over the life of the agreement. However, effective for the year ended December 31, 2023, Face Foundrie determined that the fair value of pre-opening services exceeded the initial fees received. As a result, the initial fees are now allocated to the pre-opening services and recognized as revenue when those services have been completed, which is generally upon commencement of operations. This accounting change could impact how Face Foundrie's financial performance is viewed, as revenue recognition is tied to the completion of pre-opening services rather than being spread over the franchise agreement term.