Implementing new rev rec guidance for franchisors

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HospitalityFranchisors must follow a new five-step revenue model in ASC 606, Revenue from Contracts with Customers, which supersedes legacy accounting guidance. A significant change for franchisors is the timing of revenue recognition for initial franchise fees.

As the effective date for the new guidance approaches – Jan. 1, 2018, for calendar-year public companies and Jan. 1, 2019, for calendar-year private ones – management and audit committees must respond to a number of questions:

  • What contract terms should we watch for?
  • What will my auditor look for?
  • What questions should we ask and how do we know if we’re on track?

This bulletin answers these questions and serves as a conversation starter for executives and the audit committee to engage parties involved in the implementation process, which is a cross-functional exercise demanding coordination among tax, sales, IT and other areas.