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Heads Up — FASB provides a practical expedient for private-company franchisors on the identification of performance obligations under ASC 606

Published on: 29 Jan 2021

This Heads Up discusses the FASB’s recently issued Accounting Standards Update (ASU) No. 2021-02, Franchisors — Revenue From Contracts With Customers (Subtopic 952-606): Practical Expedient. The ASU allows a private-company franchisor (i.e., a franchisor that is not a public business entity) to use a practical expedient when identifying performance obligations in its contracts with customers (i.e., franchisees) under ASC 606. When using the practical expedient, a private-company franchisor that has entered into a franchise agreement would treat certain preopening services provided to its franchisee as distinct from the franchise license. The practical expedient is intended to reduce the cost and complexity of applying ASC 606 to preopening services associated with initial franchise fees.

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