Under the FTC Franchise Rule, a start-up franchisor that has not had audited financial statements in the normal course of business has a phase-in period before being required to disclose audited financial statements in its FDD. In its first FDD, the franchisor may include an unaudited balance sheet. During the next fiscal year, the franchisor must use an audit report on its balance sheet as of the end of the previous fiscal year. During the year after that, the franchisor must use an audit report on its full set of financial statements, including balance sheet, and statements of operations, stockholders’ equity, and cash flows.
If a franchisor issued its first FDD in August 2016, that FDD would need to include an unaudited balance sheet. The franchisor's 2017 FDD would need to include an audited balance sheet as of December 31, 2016. The franchisor's 2018 FDD would need to include a full audit report as of December 31, 2017.
Note: under state law in 5 states, full audit reports are required from the very beginning (i.e. there is no phase-in of the audit requirement in those states).