Check Item 21 financial statements in the franchise disclosure document
Key facts
- Human involvement
- YellowClose supervision
- How AI is used
- Extract the financial statements attached to the disclosure document, the periods they cover, whether the file describes them as audited, and any phase-in or affiliate-guarantee wording. Do not prepare financial statements or an audit opinion.
- What the lawyer must review
- 16 CFR 436.5(u) requires financial statements prepared according to United States generally accepted accounting principles, as revised by any future United States government mandated principles, or as permitted by the Securities and Exchange Commission. Except for the start-up phase-in in paragraph (u)(2), they must be audited by an independent certified public accountant using generally accepted United States auditing standards, in a table comparing at least two fiscal years: the balance sheet for the previous two fiscal year-ends, and statements of operations, stockholders' equity, and cash flows for the previous three fiscal years. An affiliate's statements may be used only if they meet paragraphs (u)(1)(i) and (ii) and the affiliate absolutely and unconditionally guarantees the franchisor's duties to the franchisee. The guarantee need not extend to third parties, and a copy must be attached. Separate statements are required for the franchisor and any subfranchisor, and for a parent that commits to perform post-sale obligations or guarantees the franchisor's obligations. A start-up may phase in audited statements on the schedule in paragraph (u)(2), which the lawyer applies. ABA Model Rules 1.1 and 5.3 and Formal Opinion 512 leave that review with the lawyer.
- Written for / version
- United States versionUS
Who does what
| Role | What they do |
|---|---|
| Assistance | Potential support includes extracting and organising information and preparing preliminary structure or wording. Confirm the tool’s capability and permitted scope. |
| Lawyer | Set the scope, supervise the work closely, verify every part relied on, resolve omissions and exceptions, and approve the exact output. |
Checklist
- Trace every relied-on figure to its source, confirm dates and assumptions, and independently recalculate totals or derived amounts.
- Confirm the output against the client’s instructions and the complete relevant source material, including omissions or contradictions.
- Resolve exceptions and record the responsible lawyer’s approval of the exact output and intended use.
Related tasks
Draft or review a franchise disclosure document against the prescribed headingsCheck the franchisor's disclosure and any registration the jurisdiction requiresDraft or review a franchise agreement from the disclosure and the term sheetBuild a franchisee due-diligence issues list from the disclosure pack