Franchisor vs. Franchisee: Who Actually Needs an Audit in Ontario? (2026)
Reviewed by Bader A. Chowdry, CPA, CA, LPA on
We get a version of the same confused question from both sides of the franchise relationship: franchisors ask whether their franchisees need audited statements, and franchisees ask whether they’re required to get an audit because their franchisor has one. The honest answer is that these are two entirely different legal questions, governed by different sources, and conflating them is one of the more common compliance mix-ups we see in the franchise space.
Where does the audit requirement in the Arthur Wishart Act actually apply?
Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000 requires a franchisor to give a prospective franchisee a disclosure document at least 14 days before that franchisee signs any agreement or pays any money. That disclosure document must include financial statements, and under the accompanying regulation (O. Reg. 581/00), those statements must be either audited in accordance with Canadian generally accepted auditing standards, or prepared under a review engagement using generally accepted accounting principles, there is no third option for a franchisor who doesn’t qualify for the narrow exemption below. Every part of this obligation attaches to the franchisor, the party selling the franchise, because the entire point of the Act is giving a prospective franchisee enough verified financial information about the franchisor to make an informed decision before committing capital.
Is there any exemption from the franchisor’s audit-or-review requirement?
Yes, but it’s narrow. Under Section 11 of O. Reg. 581/00, a franchisor can be exempt from including specified financial statements if it meets all four of the following: a consolidated net worth of at least $5,000,000 (or $1,000,000 if it’s controlled by a corporation with a $5,000,000 net worth), at least five years operating in the same line of business, at least 25 franchisees operating in Canada or elsewhere during those five years, and a clean record, no judgments, orders, or awards against the franchisor or its associates, officers, or directors for fraud, unfair practices, or franchise-law violations in the preceding five years. In practice, most franchisors, particularly newer or smaller systems, don’t clear all four bars simultaneously, which is why an audit or review engagement is the default expectation for the large majority of Ontario franchise systems, not the exception.
Does a franchisee need audited financial statements too?
Not under the Arthur Wishart Act, the Act imposes disclosure obligations on the franchisor, not statement-preparation obligations on the franchisee. Where a franchisee ends up needing audited or reviewed financial statements, the requirement is coming from somewhere else entirely: a lender financing the franchise purchase or ongoing operations (a bank covenant is a common trigger), a landlord as part of a commercial lease renewal, or occasionally the franchise agreement itself, if the franchisor has built in a right to request the franchisee’s financials for royalty-verification or system-health-monitoring purposes. None of those triggers come from the Wishart Act, they’re contractual or lending relationships layered on top of, and independent from, the statutory disclosure regime that governs the franchisor’s side of the relationship.
Case study: a new multi-unit franchisee misreading the source of their audit requirement
A prospective GTA franchisee approached us assuming that because the franchisor’s disclosure document contained audited financial statements, the franchisee’s own newly-formed operating corporation would also need an audit once the location opened. In fact, the audit requirement they’d noticed applied entirely to the franchisor’s disclosure obligation under the Wishart Act, it said nothing about the franchisee’s own statements. The actual driver, once we reviewed the signed franchise agreement and the financing term sheet, was the franchisee’s lender’s covenant requiring annually reviewed (not audited) financial statements as a condition of the equipment-financing facility. Correctly identifying the real source of the obligation, a lender covenant, not the Wishart Act, let the franchisee scope and budget for a review engagement rather than a materially more expensive audit they didn’t actually need.
Who is allowed to sign the audit opinion on a franchisor’s disclosure statements?
This is where Bader’s own credential is directly relevant: in Ontario, only an individual holding a Public Accounting Licence (PAL), commonly known as a Licensed Public Accountant, or LPA, under the Public Accounting Act, 2004 may sign an audit or review engagement report, including the one attached to a franchisor’s disclosure-document financial statements. CPA Ontario administers and enforces this licensing requirement, and it applies regardless of which accounting firm prepares the underlying working papers, the opinion itself must carry a PAL holder’s signature. A franchisor engaging an accountant who cannot produce evidence of a current PAL is exposing its disclosure document, and by extension its ability to rely on it in a dispute with a franchisee, to a real defect.
What should each side actually check?
If you’re a franchisor: confirm whether you genuinely meet all four Section 11 exemption criteria (most systems don’t), and if you don’t, confirm your accountant holds a current PAL before the disclosure document goes out, not after a franchisee’s lawyer asks. If you’re a franchisee: don’t assume your franchisor’s audit-or-review obligation says anything about your own statements; check your financing term sheet, lease, and franchise agreement directly for whatever financial-statement covenant actually applies to you, and scope the right engagement type (compilation, review, or audit) to that specific requirement rather than defaulting to whatever your franchisor uses.
Frequently asked questions
Does the Arthur Wishart Act require franchisees to get audited financial statements?
No. The Act’s financial-statement requirement applies to the franchisor’s disclosure document. Any requirement for a franchisee’s own statements comes from a lender, landlord, or the franchise agreement, not the Act.
Can a franchisor skip the audit-or-review requirement entirely?
Only if it meets all four criteria under Section 11 of O. Reg. 581/00 (net worth, years in business, franchisee count, and clean legal record), most franchisors, especially newer or smaller ones, do not qualify.
Who can sign the audit report on a franchisor’s disclosure-document financial statements?
Only an individual holding a current Public Accounting Licence (an LPA) under Ontario’s Public Accounting Act, 2004, regardless of which firm prepares the underlying work.
My franchisor uses audited statements. Does that mean I need an audit for my own location’s financials?
Not automatically. Check your own financing agreements, lease, and franchise agreement for what they actually require, it’s often a review engagement, not a full audit, and it has nothing to do with what your franchisor filed.
Sources & Further Reading
Important, informational only, not advice. Do not use this article to make any decision.
This article is published by Insight Accounting CPA Professional Corporation for general educational purposes only. It is not tax, legal, accounting, financial, or investment advice, and nothing in this article should be relied upon, by anyone, for any purpose, to make a business, tax, financial, accounting, legal, or investment decision.
Franchise law, CRA administrative positions, and Ontario provincial rules change frequently, and the content of this article may be incomplete, simplified, out of date, or wrong by the time you read it. The right answer for your specific situation depends on facts this article does not know, your franchise agreement, financing arrangements, and corporate structure.
Before acting, engage your own Chartered Professional Accountant or qualified advisor who has reviewed your specific circumstances in writing. Insight Accounting CPA Professional Corporation, the author, and any contributors expressly disclaim all liability, direct, indirect, or consequential, for any action taken or not taken on the basis of this content.
Insight Accounting CPA Professional Corporation is led by Bader A. Chowdry, CPA, CA, LPA, licensed by CPA Ontario under the Public Accounting Act, 2004. To engage us for situation-specific advice, book a free 30-minute discovery call.
