If you’re a franchisor or franchisee, you’ll want to become familiar with the FDD franchise disclosure document. Required by the Federal Trade Commission (FTC), the franchise disclosure document provides a clear and comprehensive view of a franchise’s operational and financial foundation. Within this document, audited financial reports offer an in-depth look at the company’s financial health, equipping you with the insights needed to make informed business decisions.
In this post, we’ll discuss which sections of the FDD require an audited financial report to ensure you comply with the FTC.
What Sections of the FDD Require Audited Financials?
An FDD franchise document consists of twenty-three essential items. However, the only section that requires an audited financial report is Item 21. Item 21 outlines a franchise’s financial statements and provides interested parties with an inside look at the company’s overall financial health.
In Item 21, you can expect to review documentation relating to:
- Earnings claims
- Initial fees
- Financial condition disclosures
Because this section requires audited financials, you’ll need to provide an audit of your cash flow statement, balance sheet, and income statement. You’ll also need to report any stakeholder’s equity in the franchise. Depending on the document, you may need to provide two or three fiscal years’ worth of information.
Why Audits are Crucial for FDD Compliance
Auditing the financial statements is crucial for complying with FDD franchise disclosure compliance rules. An audit helps ensure and verify the accuracy of reported statements, which can provide potential buyers with a level of assurance that they’re making a smart investment in the franchise.
To audit your financial statements, you’ll need to partner with a franchise audit partner that understands the franchise industry. Experienced firms ensure your audits comply with generally accepted auditing principles, delivering accurate, transparent, and reliable financial insights for your FDD franchise document.
How Assurance Dimensions Can Help
Putting together an FDD franchise disclosure document is quite the undertaking, but it’s necessary to buy or sell a franchise. This document helps buyers understand what they’re taking on when they decide to invest in a franchise.
Work with an experienced franchise accounting and auditing firm to complete your franchise disclosure document. At Assurance Dimensions, we have over 75 years of industry experience, so you can rest assured that you’re in good hands when it comes to ensuring your financial statements are clear, accurate, and meet all FDD requirements.
We offer a competitive pricing structure, so there are no surprises or hidden fees. Contact us today to request an audit quote.