Now that the end of financial year has come and gone, it is time for businesses to look at preparing their financial reports for the 2015/2016 financial year.
Although this is important for all businesses, Franchisors must be particularly diligent to prepare these reports before the Franchising Code deadline.
Franchisors will be aware that the Franchising Code gives them four months after the end of each financial year to update their standard disclosure document. For Franchisors whose financial year runs on the usual 1 July – 30 June financial year, this gives them until 31 October each year to update their disclosure documents.
Failure to update Franchise disclosure documents on time is a civil penalty provision under the Franchising Code and can result in an infringement notice or fine from the ACCC.
Each Disclosure Document must contain financial reports of the Franchisor for each of the last two completed financial years. Those reports must be prepared in accordance with the requirements of section 295 to 297 of the Corporations Act 2001. Alternatively, an independent audit report by a registered company auditor may be supplied.
If the Franchisor has not existed for two full financial years, then an independent audit report will be required.
As well as the Franchisor’s financial reports, it is important for Franchisor’s not to forget their reporting obligations for the Marketing Fund. If a Marketing Fund exists for a Franchise Network, the Franchisor must also have an annual financial statement for the fund’s receipts and expenses prepared for the last financial year.
Unless 75% of Franchisee’s who contribute to the fund have voted otherwise, the Franchisor must arrange for the annual financial statement to be audited by a registered company auditor. The deadline for this audit is also 31 October (or 4 months after the end of the financial year). Failure to have the financial statement and audit report prepared on time is also a civil penalty provision.
Franchisor’s should act quickly when considering whether to seek a vote of Franchisees to waive the audit requirement for their Marketing Fund. If the required percentage is not met, Franchisors will need sufficient time to have their Marketing Fund annual financial statement prepared and audited by 31 October 2016.
As this is a particularly busy time of year for accountants and auditors, it is timely to remind Franchisors to instruct their accountants of their businesses’ requirements to ensure that the Franchising Code deadline is not missed and the Franchisor’s Disclosure Document can be updated on time.