What is the main change introduced by the new leasing guidance that Pearce Bespoke must follow?
Pearce_Bespoke Franchise · 2025 FDDAnswer from 2025 FDD Document
xpected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.
Note 2 – Summary of Significant Accounting Policies – Continued
Recently Adopted Accounting Standards – In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes existing guidance for accounting for leases under Topic 840, Leases. The FASB also subsequently issued the following additional ASUs, which amend and clarify Topic 842: ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; ASU 2018-11, Leases (Topic 842): Targeted Improvements; ASU 2018-20, Narrow-scope Improvements for Lessors; and ASU 2019-01, Leases (Topic 842): Codification Improvements. The most significant change in the new leasing guidance is the requirement to recognize right-to-use (ROU) assets and lease liabilities for operating leases on the balance sheet.
During the period ended December 31, 2023, the Company adopted Accounting Standards Update (ASU) No. 2016-02, Leases, which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. As a result of implementing ASU No. 2016-02, the Company recognized a right-of use asset and lease liability of $47,474 on its balance sheet as of December 31, 2023
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Pearce Bespoke's 2025 Franchise Disclosure Document, the most significant change introduced by the new leasing guidance is the requirement to recognize right-to-use (ROU) assets and lease liabilities for operating leases on the balance sheet. This stems from the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases, which mandates that lessees account for leases on their balance sheets and disclose relevant information about their leasing arrangements. As a result, Pearce Bespoke recognized a right-of-use asset and lease liability of $47,474 on its balance sheet as of December 31, 2023.
For a prospective Pearce Bespoke franchisee, this means that if they lease a location or equipment for their mobile unit, they will need to account for it as both an asset (the right to use the property) and a liability (the obligation to make lease payments) on their balance sheet. This change provides a more transparent view of the franchisee's financial obligations and assets related to leasing. It also allows for a more standardized comparison of financial statements across different companies, as all leases meeting certain criteria will be treated similarly.
It's important to note that while the adoption of ASU No. 2016-02 had a significant impact on the balance sheet, it did not result in a significant effect on the amounts reported in the statement of operations and members' equity (deficiency) for the period ended December 31, 2023. This suggests that the day-to-day operations and profitability of Pearce Bespoke were not greatly affected by this accounting change, but the presentation of their financial position was altered to reflect the leased assets and liabilities more accurately. Franchisees should consult with a financial advisor to understand the full implications of this accounting standard on their specific business circumstances.