Under what accounting standard does Face Foundrie account for uncertainty in income taxes?
Face_Foundrie Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company follows the guidance under ASC 740, Accounting for Uncertainty in Income Taxes. ASC 740 prescribes a more-likely-than-not measurement methodology to reflect the financial statement impact of uncertain tax positions taken or expected to be taken in the tax return. If taxing authorities were to disallow any tax positions taken by the Company, the additional income taxes, if any, would be imposed on the member rather than the Company. Accordingly, there would be no effect on the Company's financial statements.
The Company's income tax returns are subject to examination by taxing authorities for a period of three years from the date they are filed. As of December 31, 2024, the 2023, 2022 and 2021 tax years were subject to examination.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 73)
What This Means (2025 FDD)
According to Face Foundrie's 2025 Franchise Disclosure Document, the company adheres to ASC 740, Accounting for Uncertainty in Income Taxes, when dealing with uncertainty in income taxes. ASC 740 provides a methodology that requires Face Foundrie to assess the financial statement impact of uncertain tax positions that have been taken or are expected to be taken on the company's tax returns. This involves a "more-likely-than-not" measurement to determine the probability of the tax positions being upheld if challenged by tax authorities.
For a Face Foundrie franchisee, this accounting standard is important to understand because it dictates how the company handles potential tax disputes. The FDD states that if taxing authorities disallow any tax positions, the additional income taxes would be imposed on the members rather than the company, meaning it would not affect the company's financial statements. This is because Face Foundrie is structured as a limited liability company (LLC) where the income or loss is included in the income tax returns of its members.
Furthermore, the FDD mentions that Face Foundrie's income tax returns are subject to examination by taxing authorities for three years from the filing date. As of December 31, 2024, the tax years 2021, 2022, and 2023 were subject to examination. This information is relevant for prospective franchisees as it provides insight into the company's tax compliance and potential liabilities, although any tax issues would primarily affect the members rather than the company's financial standing.