Do I need audited financial statements for my franchise disclosure document (FDD)?

16 CFR 436.5(u) requires financial statements prepared under US generally accepted accounting principles and audited by an independent certified public accountant under US auditing standards. Item 21 must include:

• Balance sheets for the previous two fiscal year ends
• Statements of operations, stockholders' equity and cash flows for each of the previous three fiscal years
• A tabular format comparing at least two fiscal years
• Separate statements for any subfranchisor, and for any parent that commits to perform post-sale obligations or backs the franchisor's obligations

If the franchisor controls a subsidiary, the statements should reflect the franchisor and the subsidiary together.

A new franchise system without audited statements may phase them in under 16 CFR 436.5(u)(2):

1. First partial or full fiscal year selling franchises: an unaudited opening balance sheet.
2. Second fiscal year selling franchises: an audited balance sheet as of the end of the first year.
3. Third and later years: all required statements for the prior fiscal year, audited, plus earlier audited statements that still must be shown.

The rule also says start-ups should prepare audited statements as soon as practicable, and must disclose that they have not been in business for three years if they cannot include all required statements.

Registration states can ask for more than the federal phase-in. Ask your franchise attorney what each state you plan to sell in expects. If this will be your company's first audit, read what to expect in a first audit.

Virginia. Franchise registrations are filed with the State Corporation Commission's Division of Securities and Retail Franchising. Under 21VAC5-110-30, an initial application includes the FDD and the auditor's consent to use the latest audited statements. If the latest audited statements are more than 120 days older than the application, the FDD must also include unaudited interim statements. Under 21VAC5-110-50, a registration expires each year on the anniversary of effectiveness, and the renewal should be filed 30 days before expiration.

Maryland. Franchise registrations are filed with the Securities Division of the Maryland Attorney General's Office under the Maryland Franchise Registration and Disclosure Law, Bus. Reg. §14-201 et seq. Renewals are governed by §14-219. Maryland's Fast-Track renewal pilot (October 2025 guidelines) let eligible franchisors file the renewal by February 1 without audited statements, then file the completed FDD with Item 21 and the Consent of Accountant (Form F) by April 10. Check with the Securities Division whether the pilot continues.

Best for: emerging franchisors preparing a first FDD, and established franchisors that need an annual audit for the FDD update and state renewals.

1. Free initial consultation. Share your fiscal year end, the states you plan to register in and your attorney's timeline.
2. Fees quoted upfront, in writing. Transparent, fair fees in an engagement letter that names the statements we will audit.
3. Independence check. We confirm we are independent before we accept the audit.
4. One request list. Franchise agreements, fee revenue support, deferred revenue and related-party balances.
5. Fieldwork, done remotely. We perform the procedures US auditing standards require.
6. Report and consent. We issue the audit report and the auditor's consent for your FDD and state filings.