In order to include audited financials in the franchise disclosure document [FDD] and for state registration purposes, auditors must give consent for the franchisor’s audited financials to appear in the FDD. In order to get consent from the auditors, the auditors may request to see a copy of the FDD.
As you hand over a copy of the FDD to the auditors, you may wonder, what are they looking at? To give consent you may ask, what are the auditors looking for?
What auditors look at is not congruent. There is no protocol or perimeters of what the auditors can or should be looking at. Different auditors may look at different things. Some auditors will just do a demonstrative glance at the FDD. Other may do a granular read. There is no consistency. But there are some commonalities. Here are some tips for preparing for the auditor’s review.
1. Make sure the list of the franchise outlets and total number of outlets in item 20 matches the revenue source that you reported to the auditors. If the numbers are different, be prepared to explain the difference.
2. Make sure the audited financials are properly identified in item 21 of the disclosure document.
3. Make sure the total franchisor revenues and profits stated in item 8 regarding earnings from franchisee and vendor purchases mesh with the audit numbers.
4. Make sure the litigation disclosures in item 3 are consistent with information provided to the auditors.
5. Make sure that the issuance date is acceptable to the auditors. In all cases the issuance and effective date should be after auditor has give consent.