Citrin Cooperman’s Franchising Accounting and Consulting Practice is pleased to announce that, through its commitment to a special task force organized by the International Franchise Association (IFA), the Financial Accounting Standards Board (FASB) has released a staff paper which provides educational examples on the new revenue recognition standard affecting the franchising industry. Partners Aaron Chaitovsky, Co-Leader of the firm’s Franchising Accounting and Consulting Practice, and Joseph Turkewitz, the firm’s Assurance Practice Leader, were key members of the IFA Task force, which was fundamental in the IFA’s campaign to request clarification on the implementation of the new standards. The IFA Task Force also included Lee Plave of Plave Koch; Shelly Sun, past chair of the IFA; and IFA Government Relations staff members.
Chaitovsky and Turkewitz said in a joint statement “We have a very strong understanding and focus with regards to the franchise model and have studied it, advised numerous clients on the model, and have helped influence change in the industry for over 35 years. We have worked with the FASB over the past 20 months to secure a much needed win for the franchising community. There is now a clearer understanding of the standard and how it impacts franchising, and franchisors can get back to focusing on the core of their business: selling and creating happy, successful franchisees.”
Prior to the FASB issuing their educational staff paper, interpretations of the application of the revenue standard could have had a significant impact on private franchisors. Franchise research firm FRANdata estimated that 930 brands would have been at serious risk of bankruptcy or closure within the first three years of implementing the new revenue recognition standards, resulting in approximately 1.1 million job losses and 104,098 franchised small businesses facing closure. Due to the FASB’s educational paper, the application with regard to franchising is now more certain.
“IFA commends the FASB for working with our members to issue educational resources that illustrate how franchise brands should recognize revenue related to initial franchise fees,” said IFA President and CEO Robert Cresanti. “This educational material will help accountants accurately apply the standard and contribute to the financial stability of franchise companies."
“The FASB staff paper is one of many examples of how we’re continually monitoring and supporting the successful implementation of our standards,” added FASB Chairman Russell G. Golden. “These efforts are made possible by the valuable input provided by organizations like the International Franchise Association and its members, and we thank them for their assistance in ensuring our standards are, in fact, ‘standards that work.’”
The FASB staff paper, along with complete information about the revenue recognition standard, is available at www.fasb.org.
On November 7, 2018, during the first few minutes of the most recent FASB Board meeting, FASB Vice Chairman James Kroeker mentioned the educational examples included in the FASB staff paper and its importance on the application of the new standard to common fact patterns that may be found in practice to a typical franchise arrangement. James Kroeker’s, comments can be viewed here.