Revenue Recognition—Practical Expedient for Private
Accounting Standards Update 2021-02—Franchisors—Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient
On January 28, 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2021-02, Franchisors—Revenue from Contracts with Customers (Subtopic 952-606): Practical Expedient. The amendments in this Update introduce a new practical expedient that simplifies the application of the guidance about identifying performance obligations for franchisors that are not public business entities.
The practical expedient permits franchisors that are not public business entities to account for pre-opening services provided to a franchisee as distinct from the franchise license if the services are consistent with those included in a predefined list within the guidance. Additionally, the Board decided to provide an accounting policy election to recognize the pre-opening services as a single performance obligation.
Transition and Effective Dates
If an entity has not yet adopted Topic 606, the existing transition provisions and effective date in paragraph 606-10-65-1 are required. That guidance allows for an option of modified retrospective transition or full retrospective transition and an effective date of annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020.
If an entity has already adopted Topic 606, the amendments in this Update are effective in interim and annual periods beginning after December 15, 2020. Early adoption is permitted. For those entities, this guidance should be applied retrospectively to the date Topic 606 was adopted.