A relatively recent change to accounting standards promulgated by the Financial Accounting Standards Board (FASB) may in certain instances significantly impact the financial statements of franchisors which regulators will be reviewing this year in Item 21 of such franchisors’ Franchise Disclosure Documents (FDDs) during FDD “renewal season” (March-May). This is especially so in the case of newer, emerging franchisors.

Let us explain. A few years ago, FASB promulgated Accounting Standards Codification 606 (ASC 606) governing when a franchisor may recognize as revenue initial franchise fees received from franchisees. Under prior accounting principles, a franchisor could generally recognize as revenue a franchisee’s initial franchise fee once the franchised unit opened for business.

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