FASB Simplifies How Private Company Franchisors Evaluate Certain Performance Obligations

Practical Expedient Should Reduce Cost and Complexity for Franchisors Applying Revenue Recognition Guidance

Norwalk, CT, January 28, 2021—The Financial Accounting Standards Board (FASB) today issued an Accounting Standards Update (ASU) that provides a practical expedient that simplifies how private company franchisors analyze certain activities when determining their performance obligations in a franchise agreement.

When a business owner (the 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.

The practical expedient permits certain pre-opening services listed within the guidance to be accounted for as distinct from the franchise license.

The ASU, including effective date information, is available at www.fasb.org.