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FTC Franchise Rule Requires Audited Financials Except for Start-Up Franchisors

Tuesday, June 15th, 2010

A franchisor client recently asked me for clarification on the revised FTC Franchise Rule, specifically, whether audited financials are mandated by the FTC Rule in non-registration states, or whether less restrictive and less costly “reviewed” or “compiled” financials will suffice. The answer is clear that the revised FTC Rule does indeed require audited financials, with an exception for start-up franchisors:

Item 21: Financial Statements.

(1) Include the following financial statements prepared according to United States generally accepted accounting principles, as revised by any future United States government mandated accounting principles, or as permitted by the Securities and Exchange Commission. Except as provided in paragraph (u)(2) of this section, these financial statements must be audited by an independent certified public accountant using generally accepted United States auditing standards. Present the required financial statements in a tabular form that compares at least two fiscal years.