The Financial Accounting Standards Board (“FASB”) unanimously voted today to propose delaying the effective date for its Accounting Standards Codification® Topic 606 (“ASC 606”), Revenue From Contracts With Customers, for franchisors that are not public business entities. As I reported in October 2018, franchisors have been required to implement this changed revenue recognition standard beginning on January 1, 2019.
According to a news release this morning from the International Franchise Association (“IFA”), FASB’s decision delays implementation of ASC 606 for private franchisors by one year. From the IFA’s release:
|Dear IFA Member: I am writing to share an important, exciting – and non-coronavirus – piece of good news. This morning, the Federal Accounting Standards Board (FASB) delayed implementation of their ASC 606 revenue recognition rules for one year! |
While addressing the economic impacts of COVID-19 has been our primary focus over the last month, we have continued to press forward with our other franchising priorities, particularly the 606 recognition rules as FDD filing deadlines loom ahead.
Over the last several weeks, IFA staff and members have had several important and direct conversations with FASB, including with the current Chair, Russell Golden, and other members of the Board and technical staff. Today’s announcement is the result of that – it’s even more impressive that this delayed implementation is exclusive to franchises!
Following this morning’s decision, FASB will begin the process of taking public comment on an alternative accounting standard for private sector businesses (an “expedient”) that will allow us to make the case that certain pre-opening costs are earned immediately and should be recognized as such. IFA will keep you abreast of developments as we prepare our public comments.
We appreciate FASB’s efforts to provide relief to the franchising sector during this unprecedented time and thank them for their unanimous decision. Understanding that many franchise brands have spent considerable time and resources on filings to date, we encourage you to discuss with your legal and auditing firms whether any amendments may be made to year-end audited financial statements.
In the meantime, please don’t hesitate to reach out to Suzanne Beall with any questions. We hope this bit of good news provides you with a little hope in the midst of the crisis.
Thank You, Robert Cresanti, CFE
President & CEO
International Franchise Association
FASB made it clear that this change to ASC 606 is “optional,” meaning that for franchisors that already conducted an audit for 2019 that complies with that standard, they will not now have to go back and retroactively change their financial statements. From FASB’s release:
Revenue from Contracts with Customers (Topic 606)
The Board discussed an implementation issue in the franchisor industry related to Topic 606. The Board decided to amend the effective date of Topic 606 for franchisors that are not public business entities to annual reporting periods beginning after December 15, 2019, and interim reporting periods within annual reporting periods beginning after December 15, 2020. The Board decided to make the amendment optional.
While it remains to be seen whether ASC 606 will be further amended for franchisors on a permanent basis, today’s news is certainly good for the private franchisor that has not yet finalized its financial statements for inclusion in its 2020 franchise disclosure document. Hopefully, this delay will also assist those franchisors that have had registration issues in states like Maryland for failure to comply with ASC 606.