Franchisor needs to conduct annual financial statements audit?

Some franchisors may overlook their annual obligations for the audit.

In Australia, a Disclosure Document for franchisee or propspective franchisee is required under the Franchising Code of Conduct, Competition and Consumer (Industry Codes-Franchising) Regulation 2014.

Section 21 in the Annexure   1 -- Disclosure document for franchisee or prospective franchisee of the Franchising Code of Conduct details the audit requirements.

We extract the whole section 21 below for your consideration.

21   Financial details

 21.1  A statement of the franchisor's solvency that:

 (a)  reflects the franchisor's position:

 (i)  at the end of the last financial year; or

 (ii)  if the franchisor did not exist at the end of the last financial year--at the date of the statement; and

 (b)  is signed by at least one director of the franchisor; and

 (c)  gives the directors' opinion as to whether there are reasonable grounds to believe that the franchisor will be able to pay its debts as and when they fall due.

 21.2  Financial reports for each of the last 2 completed financial years in accordance with sections   295 to 297 of the Corporations Act 2001 , or a foreign equivalent of that Act applicable to the franchisor, prepared by the franchisor.

Note:  See also items   21.4 to 21.6.

 21.3  If:

 (a)  the franchisor is part of a consolidated entity that is required to provide audited financial reports under the Corporations Act 2001 , or a foreign equivalent of that Act applicable to the consolidated entity; and

 (b)  a franchisee requests those financial reports;

financial reports for each of the last 2 completed financial years, prepared by the consolidated entity.

Note:  See also items   21.4 to 21.6.

 21.4  Items   21.2 and 21.3 do not apply if:

 (a)  the statement under item   21.1 is supported by an independent audit provided by:

 (i)  a registered company auditor; or

 (ii)  if the franchisor is a foreign franchisor--a foreign equivalent for that franchisor;

  within 4 months after the end of the financial year to which the statement relates; and

 (b)  a copy of the independent audit is provided with the statement under item   21.1.

 21.5  If the franchisor or consolidated entity (the entity ) has not existed for 2 or more financial years, then instead of providing the financial reports mentioned in item   21.2 or 21.3, the following:

 (a)  a statutory declaration of the entity's solvency;

 (b)  an independent audit report on the entity's solvency as at the date of the entity's declaration.

 21.6  If the franchisor or consolidated entity (the entity ) was insolvent in either or both of the last 2 completed financial years, the following:

 (a)  a statement of the period during which the entity was insolvent;

 (b)  a statutory declaration of the entity's solvency;

 (c)  an independent audit report on the entity's solvency as at the date of the entity's declaration.

Written by Tiger Consulting Global. All rights reserved. 2025