What is a required audit procedure when assessing the financial statements for a Pump It Up franchise?
Pump_It_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the operations of FB Holdings, LLC and its wholly owned subsidiaries, Pump It Up Holdings, LLC; BounceU Holdings, LLC; Fun Brands, LLC; Fun Brands Tempe, LLC; and HQ Carousels, LLC. All material intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with original maturities of 90 days or less to be cash equivalents.
Concentrations and Credit Risk
The Company maintains checking and savings accounts with quality financial institutions. At times, cash balances may exceed the amount insured by the Federal Deposit Insurance Corporation.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowances for Credit Losses and Accounts Receivable
Accounts receivable consists primarily of franchise royalty fees and receivables from franchised facilities. An allowance for doubtful accounts is determined based on management's evaluation of historical losses and the financial stability of its franchisees.
The Company records accounts receivable and contract assets at their face amounts less an allowance for credit losses. The allowance represents an estimate of expected credit losses based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable, historical experience and current and expected future economic conditions. The Company writes-off a receivable and charges it against its recorded allowance when management have exhauste
Source: Item 23 — RECEIPTS (FDD pages 60–225)
What This Means (2025 FDD)
Based on the 2025 Pump It Up Franchise Disclosure Document, the preparation of consolidated financial statements requires the management to make estimates and assumptions. These estimates and assumptions impact the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported period. The actual results for Pump It Up could differ from these initial estimates.
When assessing the financial statements for a Pump It Up franchise, it is important to understand that the financial statements include the operations of FB Holdings, LLC and its wholly-owned subsidiaries, including Pump It Up Holdings, LLC. All material intercompany accounts and transactions have been eliminated during the consolidation process.
Furthermore, Pump It Up's accounting policies include allowances for credit losses and accounts receivable, which primarily consist of franchise royalty fees and receivables from franchised facilities. The allowance for doubtful accounts is determined based on management's evaluation of historical losses and the financial stability of its franchisees. Accounts receivable and contract assets are recorded at their face amounts, less an allowance for credit losses, representing an estimate of expected credit losses based on a specific review of all significant outstanding invoices. Provisions are made at differing rates based on the age of the receivable, historical experience, and current and expected future economic conditions. A receivable is written off and charged against its recorded allowance when management has exhausted collection efforts and deems the balance uncollectible.