NASAA Releases Commentary Addressing Financial Performance Representations

Though not a required disclosure, approximately half of all franchisors now provide Item 19 Financial Performance Representations (FPR’s) in their Franchise Disclosure Documents (FDD). On May 08, 2017, the North American Securities Administrators Association (NASAA) adopted additional commentary designed to clarify certain address issues relating to Item 19 Financial Performance Representations. Among the issues the FPR commentary is designed to address includes:

  1. General guidance as to how important terms like Gross Sales and Net Profit are calculated when part of a franchisor’s FPR;
  2.  How and when data may be disclosed based on company-owned, franchisee and managed outlet operations;
  3. Disclosure of sub-set data including best performing units;
  4. Requirements for disclosure of averages and medians;
  5. Use of forecasts; and
  6. Guidelines for required disclaimers.

The FPR Commentary is to become effective 180 days after adoption by NASAA or 120 days after a franchisor’s next fiscal year end for franchisors having an effective FDD as of the date of adoption.

 

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