Under the Franchising Code of Conduct, where a franchisor operates a marketing fund, they must, in addition to including details of the fund in the Franchise Agreement:
- include the details of the marketing fund in the disclosure document;
- prepare and maintain financial statements concerning the marketing fund;
- keep all funds received towards the marketing fund in a separate bank account;
- make their own contributions towards the marketing fund; and
- use the marketing fund exclusively for marketing.
We will focus our attention on the financial reporting requirements.
Section 15 of the Code requires that within 4 months after the end of the last financial year, financial statements are prepared detailing the fund’s receipts and expenses. The financial statements must include sufficient detail of these receipts and expenses so as to give meaningful information about sources of income and items of expenditure, particularly with respect to advertising and marketing expenditure.
Within 30 days of preparing the financial statements, a copy must be given to franchisees.
The Code requires financial statements of a marketing fund to be audited by a registered company auditor within 4 months after the end of the financial year to which it relates. A copy of the audit report must be given to franchisees within 30 days of its preparation. Effectively, for a June yearend the deadline for providing the audit report to franchisees is November.
Audit fees are paid by the marketing fund. The audit can be avoided if, within three months of the year end, 75% of the franchisor’s franchisees in Australia, who contribute to the fund, have voted to agree that the fund should not be audited.
Summary of Deadlines for a June 2018 Year End Marketing Fund
|Avoid audit by 75% vote that the fund not be audited||30/9/18|
|Prepare 30 June 2018 year-end financial statements||31/10/18|
|If required, have financial statements audited||31/10/18|
|Provide financial statements to franchisees||30 days from preparation|
|Provide audit report to franchisees||30 days from report date|
SAAS Audit would be happy to assist with marketing fund audit requirements. Please get in contact for more information.