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Prepared under which rules, and audited under which standards?
Item 21 specifies U.S. generally accepted accounting principles, or principles permitted by the Securities and Exchange Commission, together with applicable U.S. generally accepted auditing standards. The accounting basis governs preparation; audit standards govern the examination. Having an audit does not answer both.
The current Securities and Exchange Commission general filing rule permits foreign private issuers to use International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), or U.S. GAAP. Other comprehensive accounting principles generally require the specified U.S. GAAP reconciliation, subject to the applicable form. SEC staff guidance distinguishes IASB-issued IFRS from home-country standards and requires the stated compliance in the accounts and auditor’s opinion to omit reconciliation. This establishes the general SEC framework; it does not approve this group’s FDD accounts or replace Item 21’s audit requirements.
Parent support can affect the statement question
In a fictional European group, a new U.S. subsidiary will sell franchises while presentations promise parent training and technical support. Budgeting only for the subsidiary’s opening accounts can miss questions raised by the parent’s obligations or guarantees.
Read the actual commitments. A thin seller does not make parent promises disappear, but a strong parent does not automatically let the seller attach the parent’s annual report instead. Subfranchisor roles raise further requirements.
Allow time for the work actually needed
The required companies and reporting periods, preparation basis, audit approach and any reconciliation affect the cost and delivery date of the FDD. Signing an audit engagement is not completion of that work.
The federal startup phase-in is conditional, not a universal shortcut for an established foreign system or any newly formed U.S. seller. State acceptance and financial-assurance conditions are separate.
Scope
- This identifies acceptance issues; it does not determine the exact statements, startup eligibility or state financial conditions for your group.
Next step
Allow for the actual statement and audit work before promising the sales launch date.
Sources & review notes
Federal Trade Commission
Passage, dates and research notes
primary · Item 21: Financial statements; targeted follow-up: Complete436.5(u)
these financial statements must be audited by an independent certified public accountant using generally accepted United States auditing standards.
Prior AI-assisted review scope (2026-11-12): Current substantive item read in full from current eCFR. This guide explains selected management implications; it is not a substitute for all prescribed disclosure text. Targeted follow-up at 2026-11-14T00:50:01.831769+00:00: Re-read complete Item21 current text; preparation basis separate from audit, statement entities/periods and conditional phase-in remain. Follow-up read scope: Complete436.5(u). This follow-up does not assert a fresh complete review beyond that scope. The earlier reviewed range is preserved, with current form/CISA/docket limits unchanged unless expressly resolved above.
Federal Trade Commission
Passage, dates and research notes
official-guidance · pp. 2–4, 16, 113–115
overall method of operation
Published May 2008 (day not asserted). Read relevant full-PDF sections. Dated guidance contains obsolete monetary thresholds and dated accounting discussion: current CFR controls; auditor must verify current SEC-permitted treatment.
Securities and Exchange Commission
Passage, dates and research notes
primary · 210.4-01(a)(1)–(2)
International Financial Reporting Standards as issued by the International Accounting Standards Board
Read current actual rule. FPI/IASB/form/reconciliation conditions retained; no SEC issuer-status or FDD-account acceptance finding. Review is limited to 210.4-01(a)(1)–(2). No human or professional legal review is claimed.
SEC staff
Passage, dates and research notes
official-guidance · 6310.1–.3,6320.1–.6
auditor's report must opine
Read relevant current-hosted staff manual passages with their historical update dates. Home-country IFRS not automatically IASB IFRS; no substitute for operative regulation or Item21. Review is limited to 6310.1–.3,6320.1–.6. No human or professional legal review is claimed.
Detailed rule records (1)
Item 21 specifies financial statements and audit requirements, including U.S. GAAP or SEC-permitted principles and U.S. generally accepted auditing standards. A foreign parent’s existing audit is not automatically sufficient. Determine required franchisor, subfranchisor and relevant parent statements.
16 CFR §436.5(u): FDD Item 21 FTC Franchise Rule Compliance GuideKeep this reading in your learning library.
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