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
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
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
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1040 has been replaced by Guidance Statement 018.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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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While we still await the final legislation to be released, this is a best guess as to how the new legislation will read.
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