FASB proposed a standard Monday that would provide a practical expedient designed to simplify how private company franchisors would analyze certain activities when determining their performance obligations in a franchise agreement under the board’s revenue recognition standard.
When a business owner or franchisee opens a new branch of a franchise, the franchise agreement generally stipulates that the franchisor will support certain pre-opening activities to support the new branch. Those activities may include services such as training or site selection.
Under the proposed practical expedient, certain pre-opening services listed within the guidance would be permitted to be accounted for by private company franchisors as a single bundled, separate performance obligation if it is probable that the continuing fees in the franchise agreement would be sufficient to cover the franchisor’s continuing costs plus a reasonable profit.
Comments on the proposal are due Nov. 5 at FASB’s website.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.