Which Accounting Standards Update regarding franchisors does Itan follow?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company follows Accounting Standards Update 2021-02 "Franchisors - Revenue from Contracts with Customers". The ASU provides a practical expedient to allow qualifying franchisors to account for certain pre-opening services as distinct from franchise license.
Leases - The Company follows ASU 2016-02, Leases (Topic 842) and all related amendments. The standard established a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months and disclose key information about the leasing arrangements. Options to renew a lease are only included in the lease term to the extent those options are reasonably certain to be exercised. Leases will be classified as either finance or operating. Operating lease liabilities and their corresponding ROU assets are initially recorded based on the present value of lease payments over the term of the lease. The rate implicit in lease contracts is typically not readily determinable and, as a result, the Company utilizes the treasury yield rate to discount lease payments. Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset of its estimated life. The Company had no finance leases at December 31, 2024 and 2023.
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, the company adheres to Accounting Standards Update 2021-02, titled "Franchisors - Revenue from Contracts with Customers." This update provides Itan with a practical way to account for certain pre-opening services separately from the franchise license itself.
This accounting standard allows Itan to recognize revenue from pre-opening services independently. For a prospective franchisee, this means that the initial franchise fee they pay to Itan covers services like site selection support, architectural plans, interior and exterior design and layout, training, marketing and sales techniques, and pre-opening assistance. Itan recognizes the revenue from these services when they are substantially provided, typically around the time the new location opens.
In addition to ASU 2021-02, Itan also follows ASU 2016-02, Leases (Topic 842), and all related amendments. This standard requires Itan to recognize a right-of-use asset and lease liability on its balance sheet for leases with terms longer than 12 months. This provides transparency regarding Itan's leasing arrangements and financial obligations related to leased properties. Options to renew a lease are only included in the lease term to the extent those options are reasonably certain to be exercised. Leases will be classified as either finance or operating. Operating lease liabilities and their corresponding ROU assets are initially recorded based on the present value of lease payments over the term of the lease. The rate implicit in lease contracts is typically not readily determinable and, as a result, the Company utilizes the treasury yield rate to discount lease payments. Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset of its estimated life. The Company had no finance leases at December 31, 2024 and 2023.