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| Author : | Colten Christensen, Author |
| Course Length : | Pages: 115 ||| Word Count: 33,017 ||| Review Questions: 15 ||| Final Exam Questions: 25 |
| CPE Credits : | 5.0 |
| IRS Credits : | 0 |
| Price : | $44.95 |
| Passing Score : | 70% |
| Course Type: | NASBA QAS - Text - NASBA Registry |
| Technical Designation: | Technical |
| Primary Subject-Field Of Study: | Accounting - Accounting for Course Id 2835 |
| Overview : |
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| Description : |
Franchise accounting presents unique financial reporting challenges due to the contractual relationships, fee structures, and operational dependencies that exist between franchisors and franchisees. As franchising continues to expand across industries such as food service, hospitality, fitness, retail, and professional services, CPAs must understand how franchise business models affect revenue recognition, expense classification, asset accounting, and financial risk. This course explores the financial structure of franchise systems, including how franchisors generate revenue, how franchise agreements shape accounting treatment, and the risks that can arise when financial reporting does not properly reflect the economic substance of franchise arrangements. The course also examines the practical accounting considerations faced by both franchisors and franchisees, including the application of ASC 606 to franchise fees and royalties, capitalization and amortization of franchise rights, lease accounting under ASC 842, and accounting for build-out costs and required technology systems. Participants will also explore common financial reporting risks, impairment considerations, internal control practices, and the use of analytical procedures to evaluate franchise performance. The course concludes with a discussion of advisory opportunities for CPAs and the ethical responsibilities involved in franchise financial reporting, including financial transparency, disclosure integrity, and the importance of objective financial communication. By the end of the course, participants will have a stronger understanding of how to apply accounting standards within franchise environments and how to support sound financial reporting, risk management, and informed decision-making in franchise organizations. |
| Usage Rank : | 0 |
| Release : | 2026 |
| Version : | 1.0 |
| Prerequisites : | None. |
| Experience Level : | Overview |
| Additional Contents : | Complete, no additional material needed. |
| Additional Links : |
Internal: Accounting CPE Courses for CPAs
Internal: New CPE Course Search Results
External: Understanding Franchises: How They Work and Their Benefits
External: Franchise disclosure document
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| Advance Preparation : | None. |
| Delivery Method : | QAS Self Study |
| Intended Participants : | Anyone needing Continuing Professional Education (CPE). |
| Revision Date : | 27-Apr-2026 |
| NASBA Course Declaration : | Participants must complete the final examination within one year of purchase and with a minimum passing grade of 70% or better to receive CPE credit unless otherwise noted on the Course History page (i.e. California Ethics must score 90% or better). After logging in click on the Course History links on your My Courses page for the Begin date and Expire date for the Final Exam. |
| Approved Audience : | NASBA QAS - Text - NASBA Registry - 2835 |
| Keywords : | Accounting, Franchise, Accounting, Fundamentals, cpe, cpa, online course |
| Learning Objectives : |
Course Learning Objectives By the end of this course, participants will be able to:
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| Course Contents : | Chapter 1 - Franchise Accounting Fundamentals Course Learning Objectives Understanding Franchise Business Models What is a Franchise? Key Parties in a Franchise Relationship Independence of the Franchise Relationship Economic Relationship Between the Franchisor and Franchisee Key Components of Franchise Agreements Initial Franchise Fee Ongoing Royalties Marketing Fund Contributions Territory Rights Training Obligations Operational Support Why These Components Matter to CPAs Types of Franchise Models Product Distribution Franchise Business Format Franchise Manufacturing Franchise Why Understanding Franchise Models Matters to CPAs Common Industries Restaurants Hospitality Fitness Retail Service Businesses Why Industry Context Matters for CPAs Financial Structure of Franchise Systems Revenue Streams of Franchisors Cost Structures of Franchisors Why Understanding the Financial Structure Matters Risks Unique to Franchise Systems Franchisee Failure Risk Brand Reputation Risk Regulatory Risk Revenue Concentration Risk Growth Sustainability Risk Operational Control Risk Litigation Risk Franchisee Profitability Risk Why Risk Awareness Matters for CPAs Revenue Recognition for Franchise Fees (ASC 606) Systems Overview of ASC 606 5-Step Model Step 1: Identify the Contract with the Customer Step 2: Identify Performance Obligations Step 3: Determine the Transaction Price Step 4: Allocate the Transaction Price Step 5: Recognize Revenue When Performance Obligations Are Satisfied Why the Five-Step Model Matters in Franchise Accounting Performance Obligations in Franchise Agreements License of Intellectual Property Initial Training Site Selection Support Opening Assistance Ongoing Support Determining Whether Obligations Are Distinct Why Performance Obligations Matter to CPAs Initial Franchise Fees The Core Question: Recognize Revenue Immediately or Over Time? Symbolic Intellectual Property vs Functional Intellectual Property Ongoing Obligations Material Rights Why Initial Franchise Fees Are Usually Recognized Over Time Common Mistakes CPAs Should Watch For Why This Topic Matters to CPAs Royalty Revenue Recognition The Sales-Based Royalty Exception Revenue Recognition When Franchisee Sales Occur Reporting and Verification of Franchisee Sales Minimum Royalties and Fixed Fee Structures Collectability Considerations Timing and Cutoff Considerations Why Royalty Revenue Recognition Is Generally Simpler Than Initial Franchise Fees Common Mistakes CPAs Should Watch For Why Royalty Revenue Recognition Matters to CPAs Advertising Fund Revenue Understanding Advertising Fund Contributions Agency vs Principal Considerations Liability vs Revenue Treatment Financial Statement Implications Disclosure Considerations Risks Associated with Advertising Fund Accounting Why This Topic Matters to CPAs Renewal Fees Understanding Renewal Fees When a Renewal Is Considered a New Contract When a Renewal Is Considered a Contract Modification Material Rights and Renewal Options Revenue Recognition Considerations for Renewal Fees Practical CPA Considerations Common Errors CPAs Should Watch For Why Renewal Accounting Matters to CPAs Common Errors CPAs Make Recognizing Initial Franchise Fees Too Early Ignoring Performance Obligations Misclassifying Advertising Funds Additional Errors CPAs Sometimes Encounter Why These Errors Occur How CPAs Can Avoid These Errors Why Understanding These Errors Matters Accounting Considerations for Franchisees Initial Franchise Fees Why Initial Franchise Fees Are Recorded as Intangible Assets Initial Measurement of the Franchise Asset Amortization Over the Franchise Agreement Term Typical Journal Entry at Acquisition Typical Amortization Entry Renewal Considerations Impairment Considerations Tax Considerations (General Awareness for CPAs) Common Errors CPAs Should Watch For Why This Topic Matters to CPAs Journal Entry Example Basic Journal Entry to Record the Franchise Fee When the Franchise Fee Is Financed Why the Asset Is Recorded at Full Cost Additional Costs That May Be Included Subsequent Accounting After Initial Entry Balance Sheet Presentation Common Mistakes CPAs Should Watch For Financial Analysis Implications Why This Topic Matters to CPAs Amortization Treatment Amortization Over the Franchise Agreement Life Straight-Line Amortization Is Most Common When Amortization Begins Renewal Period Considerations Impairment Considerations Financial Statement Impact Common Errors CPAs Should Watch For Advisory Implications for CPAs Why This Topic Matters Royalty Payments Nature of Royalty Payments Why Royalties Are Treated as Operating Expenses Typical Journal Entry for Royalty Payments Timing of Expense Recognition Financial Statement Impact Cash Flow Considerations Minimum Royalty Obligations Interaction With Other Franchise Costs Common Errors CPAs Should Watch For Advisory Implications for CPAs Why This Topic Matters Lease Accounting (ASC 842) Types of Leases Commonly Found in Franchise Businesses Understanding the Right-of-Use (ROU) Asset Understanding the Lease Liability Initial Lease Recognition Example Subsequent Accounting for Operating Leases Finance Lease Considerations Why Lease Accounting Matters for Franchisees Leasehold Improvements and Build-Out Costs Common CPA Considerations Common Errors CPAs Should Watch For Financial Statement Impacts Advisory Implications for CPAs Why This Topic Matters Build-Out Costs Understanding Build-Out Costs Why Leasehold Improvements Are Capitalized Initial Accounting for Leasehold Improvements Depreciation of Leasehold Improvements Straight-Line Depreciation Is Most Common Lease Term Considerations Tenant Improvement Allowances Abandonment and Early Termination Risk Distinguishing Repairs vs Improvements Financial Statement Impact Common Errors CPAs Should Watch For Advisory Considerations for CPAs Why This Topic Matters Required Technology Systems Types of Required Technology Systems POS Systems Software Subscriptions (SaaS Arrangements) Capitalized Software Costs Training Costs Related to Technology Required Technology Fees Paid to Franchisors Financial Statement Impact Common Errors CPAs Should Watch For Advisory Considerations for CPAs Why This Topic Matters Franchisee Financial Risks High Leverage Cash Flow Pressure Fee Structures Interrelationship of Financial Risks Early Warning Signs of Financial Stress Advisory Role of CPAs in Managing Franchisee Risk Why Understanding Franchisee Financial Risks Matters Financial Reporting Risks and Best Practices Key Financial Statement Risks Franchisor Financial Reporting Risks Franchisee Financial Reporting Risks Interrelationship Between Franchisor and Franchisee Risks Why Understanding Financial Statement Risks Matters Impairment Considerations Impairment Considerations for Franchisors Impairment Considerations for Franchisees Impairment Testing Approach Financial Statement Impact of Impairment Common Errors CPAs Should Watch For Advisory Implications for CPAs Why Impairment Considerations Matter Internal Controls Internal Controls for Franchisors Internal Controls for Franchisees Why Internal Controls Matter in Franchise Systems Common Control Weaknesses CPAs Should Watch For Advisory Opportunities for CPAs Why This Topic Matters Franchise Disclosure Document (FDD) Overview of the Franchise Disclosure Document Importance of the FDD for CPAs Item 19 – Financial Performance Representations Limitations of Financial Performance Representations Required Disclosures Relevant to CPAs Financial Statement Disclosures of the Franchisor (Item 21) Risk Indicators CPAs May Identify in the FDD Common Mistakes CPAs Should Help Clients Avoid Advisory Role of CPAs in FDD Analysis Why the FDD Matters to CPAs Analytical Procedures Same Store Sales (Comparable Unit Sales) Royalty Growth Franchise Unit Growth Franchisee Turnover Average Unit Volume (AUV) How CPAs Use These KPIs in Analytical Procedures Red Flags CPAs May Identify Through KPI Analysis Best Practices for KPI Analysis Why Analytical Procedures Matter in Franchise Accounting Advisory Opportunities for CPAs Financial Feasibility Analysis for Prospective Franchisees Profitability and Unit Economics Analysis Cash Flow and Working Capital Planning Expansion and Growth Advisory Cost Structure Optimization Debt and Financing Advisory Financial Benchmarking and Performance Monitoring Exit Strategy and Valuation Advisory Risk Management Advisory Advisory Opportunities With Franchisors Technology and Data Advisory Why Advisory Services Matter for CPAs Why This Topic Matters Ethics Considerations Overstated Performance Claims Financial Transparency Disclosure Integrity Ethical Responsibilities of CPAs Managing Ethical Pressure Consequences of Ethical Failures The CPA’s Role in Promoting Ethical Franchise Practices Why Ethics Matter in Franchise Accounting Glossary |
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