Designed around FDD requirements
Our team provides audit and financial reporting services designed around franchisors and their FDD requirements.
Accurate Financial Statements. FDD-Ready Reporting. Confident Franchise Growth.
Building a franchise system means building a business that prospective franchisees can evaluate with confidence.
For franchisors offering franchises in the United States, financial statement disclosure is an important part of the Franchise Disclosure Document (FDD). Under the FTC Franchise Rule, Item 21 generally requires franchisors to include specified financial statements, with audited financial statements required subject to limited exceptions and phase-in rules for qualifying new franchisors.
Our franchisor audit professionals help franchise companies prepare accurate financial statements and support the audit process required for applicable FDD disclosures.
Franchise businesses have financial reporting requirements that can differ from those of traditional operating companies.
Our team provides audit and financial reporting services designed around franchisors and their FDD requirements.
Our objective is to help franchisors maintain reliable financial information and obtain the financial statement audit services needed for applicable franchise disclosure requirements.
Our franchisor audit services include:
Item 21 of the Franchise Disclosure Document focuses on the franchisor's financial statements. The FTC states that Item 21 provides prospective franchisees with the franchisor's most recent audited annual financial statements. The applicable financial statements must generally be prepared in accordance with U.S. GAAP and audited by an independent CPA using applicable auditing standards.
Our team helps franchisors organize the financial information and supporting documentation needed for the applicable audit engagement.
The financial statement requirements under the Franchise Rule generally include the items below.
Franchising is an ongoing business, and your financial reporting needs continue after the first franchise sale. The FTC Franchise Rule requires franchisors to update their FDD annually after the close of their fiscal year. The FTC's guidance states that the revised disclosure document must be prepared within 120 days of fiscal year-end under the amended Rule.
We help franchisors establish a repeatable annual workflow: Year-End Close → Accounting Review → Audit Preparation → Independent Audit → Final Financial Statements → FDD Item 21.
Your annual financial reporting process needs to work with your franchise disclosure timeline. A structured process can help reduce last-minute requests and give your legal and franchise teams the financial information they need for the annual FDD update.
A new franchisor may not yet have three years of audited financial statements. The FTC Franchise Rule includes a phase-in approach for qualifying companies that are new to franchising. Exact requirements depend on the franchisor's circumstances and applicable Franchise Rule provisions.
Accurate classification and accounting for franchise revenue streams is important when preparing financial statements. Our team can review relevant revenue information and accounting records as part of the applicable engagement.
Initial franchise fees and other franchise-related payments may require specific accounting treatment depending on the applicable accounting standards and contract terms.
The FTC Franchise Rule contains specific provisions concerning parent and affiliate financial statements. Under certain circumstances, financial statements of an affiliate may be used when the affiliate provides an appropriate unconditional guarantee of the franchisor's obligations.
As the number of franchise locations increases, franchisors may need stronger processes. Our team helps growing franchisors maintain financial reporting processes that can support their expanding franchise network.
Our audit process is designed to provide an independent examination of the franchisor's financial statements. Depending on the engagement, audit procedures may cover the areas below.
A well-organized audit preparation process can make the annual financial reporting cycle more manageable. Our team can help organize:
Review financial activity and significant account balances.
Organize cash and bank information.
Review franchise fees, royalties, and other franchise-related revenue.
Review franchisee balances and aging information.
Organize supporting information for applicable deferred revenue balances.
A well-organized audit preparation process can make the annual financial reporting cycle more manageable. Our team can help organize:
Review financial activity and significant account balances.
Organize cash and bank information.
Review franchise fees, royalties, and other franchise-related revenue.
Review franchisee balances and aging information.
Organize supporting information for applicable deferred revenue balances.
Our franchisor audit services can support the organizations below. Our services can be tailored to the organization's size, structure, accounting system, and applicable financial reporting requirements.
Franchisors have financial reporting considerations that differ from many traditional businesses. Our approach is designed around franchise-related financial activity.
We understand the importance of coordinating audited financial statements with the financial disclosure requirements applicable to franchisors.
We help create a structured process for recurring year-end audit and financial reporting requirements.
As your franchise network grows, your accounting and reporting needs can become more complex. Our services can scale with your organization.
We examine relevant financial information and supporting documentation as part of the applicable audit engagement.
We can work with your internal accounting team and other professional advisors involved in your franchise disclosure process.
Your financial statements are an important part of how your franchise system presents itself to prospective franchisees. The FTC's Franchise Rule requires franchisors to provide specific financial information in the FDD, including audited financial statements under Item 21 subject to applicable exceptions and phase-in provisions. Our franchisor audit professionals help you prepare reliable financial statements and establish an organized audit process that supports your annual franchise disclosure cycle.
Under the FTC Franchise Rule, Item 21 generally requires franchisors to include audited financial statements in the FDD, subject to specific exceptions and phase-in provisions for qualifying new franchisors.
Item 21 is the section of the Franchise Disclosure Document that provides the franchisor's financial statements. The FTC describes Item 21 as providing the franchisor's three most recent audited annual financial statements, subject to the Rule's requirements and exceptions.
The FTC Franchise Rule requires an annual update after the close of the franchisor's fiscal year, within the applicable period. The amended Rule provides 120 days after fiscal year-end for the annual update.
A new franchisor may not initially have three years of audited financial statements. The FTC Franchise Rule provides a phase-in for qualifying new franchisors that do not yet have audited financial statements.
The Franchise Rule generally requires the financial statements to be prepared according to U.S. GAAP, subject to the Rule's provisions, and audited by an independent CPA using applicable auditing standards.
In certain circumstances, the Franchise Rule permits financial statements of an affiliate or parent to be used, but specific conditions apply. For example, an affiliate alternative can involve an absolute and unconditional guarantee of the franchisor's obligations.
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