How could the adoption of ASU 2021-08 potentially affect Remax's future Independent Region acquisitions?
Remax Franchise · 2025 FDDAnswer from 2025 FDD Document
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805)- Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to recognize and measure contract assets (commissions related to franchise sales) and contract liabilities (deferred revenue) acquired in a business combination in accordance with ASC 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. This would impact the Company's future Independent Region acquisitions and could have a material effect depending on the acquisition size as the fair value of these items are typically nominal at acquisition date. There would be no impact to cash flows.
Source: Item 1 — Business and Organization (FDD pages 334–464)
What This Means (2025 FDD)
According to Remax's 2025 Franchise Disclosure Document, the adoption of ASU 2021-08 could have a material effect on the company's future Independent Region acquisitions. This accounting standards update, issued by the FASB in October 2021, pertains to how businesses account for contract assets (commissions related to franchise sales) and contract liabilities (deferred revenue) acquired during business combinations.
The new standard requires Remax to recognize these contract assets and liabilities at amounts consistent with those recorded by the acquired entity immediately before the acquisition date, rather than at fair value. This change is effective for fiscal years beginning after December 15, 2022, and Remax was permitted to adopt it early.
The FDD indicates that the impact of ASU 2021-08 on Remax's acquisitions could be material depending on the size of the acquisition, given that the fair value of these items is typically nominal at the acquisition date. However, the adoption of this standard will not impact Remax's cash flows.