FOR IMMEDIATE RELEASE
Contact:
Jenna Weisbord, 202-662-0766
jweisbord@franchise.org
@franchising411
IFA Commends FASB for Acknowledging Concerns of Emerging Franchisors
WASHINGTON, Nov. 30 – The International Franchise Association (IFA) President and CEO Robert Cresanti issued the following statement in response to the Financial Accounting Standards Board’s (FASB’s) acknowledgement there can be multiple performance obligations in regards to revenue recognition of initial franchise fees(seen in section 10a on page 11 of the FASB handout distributed during its open Board meeting held in Norwalk, Conn. on November 29, 2017):
As the FASB in its handout explains, ‘One of the most prevalent questions from the franchise industry involves determining whether or not pre-opening activities constitute a distinct performance obligation.’ The handout goes on to say, ‘Topic 606 does not include presumptions about how many performance obligations are in an arrangement.’ “The IFA is very pleased the FASB has acknowledged franchisors’ concerns by clarifying that multiple performance obligations may be present in the early stages of launching an new franchise,” stated Cresanti.
FASB’s clear statement confirms that in most cases, the initial franchise fee is not to be deferred in whole throughout the term of the franchise agreement, but rather, components of that fee are properly taken into revenue when the franchisor has completed its separate individual performance obligations (such as delivering discrete goods and providing certain services to the new franchisee).
Shelly Sun, CEO and founder of BrightStar Care and Chairwoman of International Franchise Association, shared her pleasure with the results of IFA’s efforts:
“From an early planning meeting in March 2017, I set Revenue Recognition under 606 as one of the most critical issues of my year as IFA Chair. We put together a task force of IFA staff and industry experts including Aaron Chaitovsky and Joe Turkewitz of Citrin Cooperman, Joe Dunn of Fisher Zucker, Lee Plave of Plave Koch, and myself, who together engaged the SEC and FASB directly to protect franchisors – addressing among other things the disproportionate impact that the Revenue Recognition standard may have on emerging franchisors facing escrow requirements in registration states. IFA added huge value to franchisors through its investment of time and resources and this should be a call to action for non-IFA member Franchisors to join IFA to ensure we continue to have the resources for IFA to advocate and add member value.”
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About the International Franchise Association
Celebrating 56 years of excellence, education and advocacy, the International Franchise Association is the world’s oldest and largest organization representing franchising worldwide. IFA works through its government relations and public policy, media relations and educational programs to protect, enhance and promote franchising and the more than 733,000 franchise establishments that support nearly 7.6 million direct jobs, $674.3 billion of economic output for the U.S. economy and 2.5 percent of the Gross Domestic Product (GDP). IFA members include franchise companies in over 300 different business format categories, individual franchisees and companies that support the industry in marketing, law, technology and business development.