Franchisors are well aware that they are required, under the terms of the Franchising Code of Conduct, to provide certain financial information with their disclosure document. However, the introduction of Guidance Statement GS 018 means that the form of audit report many franchisors have relied on for years to support their financial position may no longer be sufficient.
Under section 20.1 of an Annexure one disclosure document at least one director of the franchisor must provide a statement as to whether, in the director's opinion, there are reasonable grounds to believe that the franchisor will be able to pay its debts as an when they fall due. This statement must be supported by either:
- financial reports of the franchisor for each of the last two completed financial years; or
- a copy of an independent audit report provided by a registered company auditor.
To assist company auditors prepare audit reports for the purposes of the Franchising Code of Conduct, the Australian Government Auditing and Assurance Standards Board prepared a guidance statement in November 2002 (Guidance Statement AGST 1040) which included an example audit report. Many auditors and franchisors relied on the example audit report when preparing their audit report and this form of report is commonly found in franchise disclosure documents.
However in October 2010 Guidance Statement AGST 1040 was replaced with a new guidance statement - Guidance Statement GS 018. The new guidance statement covers many of the same issues as the former guidance statement. However it also includes a revised example audit report. The new example audit report is considerably different from the example audit report that was contained in Guidance Statement AGST 1040.
Many auditors will already be aware that Guidance Statement AGST 1040 has been replaced by Guidance Statement 018. However, franchisors should bring this to the attention of their auditors to ensure that their auditors are familiar with the new Guidance Statement and are preparing their audit reports in accordance with the most up to date information.
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