What accounting principles must Punch King Fitness follow when preparing financial statements?
Punch_King_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
Source: Item 22 — CONTRACTS (FDD pages 56–215)
What This Means (2024 FDD)
According to Punch King Fitness's 2024 Franchise Disclosure Document, the company's financial statements must adhere to accounting principles generally accepted in the United States of America. This is explicitly stated in the Independent Auditor's Report, which covers the financial statements for both 2022 and 2023. Management is responsible for preparing and fairly presenting these financial statements in accordance with these principles.
The auditor's role is to provide an opinion on whether the financial statements present fairly the financial position, results of operations, and cash flows of Punch King Fitness in accordance with generally accepted accounting principles in the United States of America. The audit is conducted following auditing standards generally accepted in the United States of America to ensure reasonable assurance that the financial statements are free from material misstatement.
Furthermore, the financial statements require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent items, and reported amounts of revenue and expenses. This includes evaluating the collectability of receivables and establishing allowances for credit losses. The company also has specific policies for revenue recognition, recognizing revenue from franchise fees when services are provided and the franchisee commences operations, and from royalty fees during the franchise agreement term.
Prospective franchisees should understand that adherence to generally accepted accounting principles is a standard practice that ensures transparency and comparability of financial information. However, it's also important to note that the financial statements included in the FDD are prepared without an audit for newer franchises, as Punch King Fitness has not been in business for three years or more, which could impact the level of assurance a franchisee has in their accuracy.