Why did Precision Door Service restate its 2022 financial statements?
Precision_Door_Service Franchise · 2025 FDDAnswer from 2025 FDD Document
t the fair value of its reporting unit is less than the carrying amount and, as such, a quantitative impairment test was not considered necessary. Management determined that there was no impairment of goodwill in the combined financial statements.
Restatement
During 2023, we determined that our prior year goodwill impairment was overstated and the goodwill balance was understated, resulting in an error in our previously issued financial statements for the period ended December 31, 2022. The overstatement of impairment expense was the result of concluding, in error, that reporting units in Assetco were the same as in the Manager. We have instead concluded that Assetco is comprised of only one consolidated reporting unit, and based on our quantitative impairment analysis performed as of December 31, 2022, we concluded that no impairment existed at Assetco. We concluded that the effect of the error on the financial statements of the prior period was material, and the correction to the prior year is reflected in the accompanying financial statements.
As a result, we recorded a $25,937 adjustment to reduce Loss on impairment of goodwill and increase Goodwill and Total assets by $25,937 in the combined balance sheet as of December 31, 2022. The correction also impacted the following financial statement line items in the related financial statements: (i) increased Accumulated other comprehensive income/(loss), Goodwill, and Total assets by $2,264 and increased Total Member's Equity and Total liabilities and member's equity by $28,201 in the combined balance sheet as of December 31, 2022; (ii) increased Net income by $25,937, increased Foreign currency translation adjustment by $2,264 and increased Comprehensive income by $28,201 in the combined statement of operations and comprehensive income for the period ended December 31, 2022; (iii) increased Net income by $25,937, increased Foreign currency translation adjustment by $2,264 and increased total Member's equity balance by $28,201 in the combined statements of changes in Member's Equity for the period ended December 31, 2022; (iv) increased Net income by $25,937 and reduced loss on impairment of goodwill by the same amount in the combined statement of cash flows for the period ended December 31, 2022; and (v) reduced the goodwill impairment by $25,937, increased the Adjustment to goodwill for unrealized gain/loss on foreign currency by $2,264, and increased the ending goodwill balance by $28,201 as of December 31, 2022 in Note 4 to the combined financial statements.
Additionally, we recorded an immaterial correction of $800 in 2022 which impacted the following financial statement line
Source: Item 21 — Financial Statements (FDD page 91)
What This Means (2025 FDD)
According to Precision Door Service's 2025 Franchise Disclosure Document, the company restated its 2022 financial statements due to an overstatement of prior year goodwill impairment and an understatement of the goodwill balance. This error stemmed from incorrectly concluding that reporting units in Assetco were the same as in the Manager. After reassessment, Precision Door Service determined that Assetco consists of only one consolidated reporting unit, and a quantitative impairment analysis as of December 31, 2022, indicated no impairment existed at Assetco.
The correction of this error led to several adjustments in the financial statements. A $25,937 adjustment was recorded to reduce the loss on impairment of goodwill and increase both Goodwill and Total assets on the combined balance sheet as of December 31, 2022. Additionally, Accumulated other comprehensive income/(loss), Goodwill, and Total assets increased by $2,264, while Total Member's Equity and Total liabilities and member's equity increased by $28,201. The net income increased by $25,937, the foreign currency translation adjustment increased by $2,264, and comprehensive income increased by $28,201 in the combined statement of operations and comprehensive income for the period ended December 31, 2022.
These restatements are important for prospective franchisees as they provide a more accurate view of Precision Door Service's financial performance. Understanding the reasons behind financial restatements helps franchisees assess the stability and reliability of the franchisor's financial reporting. Additionally, an immaterial correction of $800 in 2022 also impacted several financial statement line items, including increasing Trade accounts receivable – net, Total current assets, Total assets, Accumulated earnings, Total Member's Equity, and Total liabilities and member's equity by $800 in the combined balance sheet as of December 31, 2022. This correction also increased Other revenue, Total revenues and income, Gross Profit, Net income and Comprehensive income by $800 in the combined statement of operations and comprehensive income for the period ended December 31, 2022.
Prospective franchisees should carefully review these restatements and consider their implications when evaluating the financial health of Precision Door Service. It is advisable to seek professional financial advice to fully understand the impact of these changes on the company's financial position and future prospects. While restatements can sometimes raise concerns, in this case, it appears to be a correction of a prior error, leading to a more accurate financial representation.