FASB proposes to simplify revenue recognition for franchisors

The Financial Accounting Standards Board released a proposed accounting standards update Monday to offer a practical expedient to the current revenue recognition rules for franchise businesses to help them analyze some activities when determining their performance obligations in a franchise agreement.

When a franchisee business owner opens a new branch of a franchise, the franchise agreement generally requires the franchisor to perform certain pre-opening activities to support the new branch. Those activities may include services such as training or site selection.

FASB’s proposed practical expedient would allow certain pre-opening services listed within the guidance to be accounted for 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.

The International Franchise Association has been pushing FASB for changes to the revenue recognition rules and succeeded in winning a delay of the standard earlier this year for private franchises as part of a larger deferral of various accounting standards in response to the COVID-19 pandemic (see story).

FASB is asking for comments on the proposal by Nov. 5, 2020.

FASB, GASB and FAF logos on the wall at headquarters in Norwalk, Connecticut
FASB, GASB and FAF logos on the wall at headquarters in Norwalk, Connecticut
Courtesy of GASB

For reprint and licensing requests for this article, click here.
Revenue recognition Accounting standards FASB Small business
MORE FROM ACCOUNTING TODAY