Franchise Audits – What is it and What’s involved?

What’s a franchise audit? What’s concerned with a franchise audit? These questions and extra are answered by Moh Metwally on this podcast episode. 

*This podcast presentation is lower from the Large Sky Franchise Staff webinar collection that was initially a stay broadcast on July 29, 2021.  


Tom DuFore, Large Sky Franchise Staff (00:00):

If you happen to’ve been questioning tips on how to franchise your enterprise or tips on how to take your franchise firm to the subsequent stage, then this podcast is for you. I’m your host, Tom DuFore, CEO of Large Sky Franchise Staff and a serial entrepreneur. And welcome to the Franchise Your Enterprise podcast. On the episode in the present day, we have now our webinar from this previous Friday, all about franchise audits. So if you happen to’ve ever questioned, what’s a franchise audit? How does a franchise audit work? Why do I want one? What are all the main points concerned? That is the podcast for you and our visitor is Mo Metwally who’s a CPA, an audit companion at Metwally CPA, and he focuses on franchise audits. So we’ll go forward and bounce proper into his overview on the franchise audit course of.

Mohamed Metwally, Metwally CPA PLLC (00:50):

All proper, Tom. Thanks a lot. Thanks everybody for becoming a member of. Identical to Tom talked about, my title is Mohammad Metwally. I’m out of Dallas, Texas. Been a CPA for some time and I’m an exhibit 4. Proper now my apply is mainly specialised in franchise audit. So I’m attempting to stroll you thru what’s audit, what to anticipate. A few of you already been there and know what to anticipate, however for individuals who is aware of or perhaps for those that by no means been in an audit, right here is an audit to high-level give your expectations about what’s coming your method from an audit perspective.

Mohamed Metwally, Metwally CPA PLLC (01:33):

So I’m going to kick it off right here by saying what’s audit versus evaluate? So we get that so much. Some states require evaluate monetary statements. Some states require audit monetary statements, particularly for opening steadiness sheet audit or evaluate. So you possibly can work together with your authorized to find out if you’re in want of audit or evaluate. However what’s that? So audit from an auditor perspective is we offer an affordable assurance that the monetary statements are free of fabric misstatements. And it’s cheap assurance.

Mohamed Metwally, Metwally CPA PLLC (02:14):

Now in evaluate, we offer restricted assurance. What’s the distinction between cheap assurance and restricted assurance? Effectively, in cheap assurance, which is audit, we actually dig deep down into your books and we audit substantive. Meaning I’ll get a pattern of picks, after which I’ll begin asking for supporting documentation, invoices, agreements, payments, financial institution statements. So it’s actually, actually in-depth testing. That is audit. Within the different hand, evaluate is far more lighter than audit as a result of we’re probably not required to dig deep down into your books. We wish to see that the numbers are actually tying out to supporting documentation at a excessive stage. I don’t have the samples. I don’t have to check each single account. I simply wish to be sure that your financials are GAAP. There isn’t any bizarre account or something that catches my eyes, however different disclosure are adequate. However there isn’t any testing or in depth testing, I ought to say like an audit.

Mohamed Metwally, Metwally CPA PLLC (03:32):

So if you happen to obtained an opportunity to be like, “Okay, an audit or evaluate?” Undoubtedly my suggestion. If you happen to’re eligible or the requirement is relaxed and you will get away with a evaluate, to go together with a evaluate. So which one you want, you’ll in all probability need to work together with your authorized staff. Be sure you’re assembly the necessities. And if it’s a evaluate, that’d be nice. If audit, then is what it’s.

Mohamed Metwally, Metwally CPA PLLC (03:58):

Auditor’s work, as I discussed, it’s considerably much less in evaluate that an audit. And due to this fact, after all the associated fee will likely be much less. And I get that so much. Some folks ask, “Okay, you simply audit the numbers, proper?” No, we audit extra than simply numbers. It’s not simply monetary statements. We’re required to audit extra than simply the numbers offered within the monetary statements. We’re required to evaluate your going concern. Are you going to be within the enterprise within the subsequent six or 12 months? We require to look into your legal guidelines and laws compliance. Did you file your tax return? And so forth and so forth. So audit is method in depth. In nutshell, if you happen to obtained the choice to do evaluate, then that’d be nice. If not, then it’s audit.

Mohamed Metwally, Metwally CPA PLLC (04:50):

So audit requirements. We do an AICPA, PCAOB. What sort of audits I want? In fact, if you’re within the franchise world, it most certainly will likely be AICPA, which is personal corporations, until you’re public. After you have that public SEC, then you definately’re going to go to the general public firm’s steerage, which is PCAOB. PCAOB is much more in depth than simply the personal AICPA requirements, so it requires plenty of disclosures and requires plenty of displays. There’s a lot into it than only a single AICPA. So actually it depends upon your state of affairs. However if you’re a listed firm, then most certainly you’ll go together with the PCAOB. However if you happen to’re not listed, you’re personal, then from what I see within the majority would be the AICPA. That stands for American Establishment of Licensed Public Accountants.

Tom DuFore, Large Sky Franchise Staff (05:50):

Mo, that is Tom. Simply to leap in actual fast, a lot of the of us that will likely be on this are going to be privately held. Nearly all of them will likely be. In order that that’ll be the main focus, for certain.

Mohamed Metwally, Metwally CPA PLLC (06:02):

Yeah. So it’s going to be the AICPA steerage. In order that’s what we’re going to be… And that’s nearly all of the franchise world. So we will likely be focusing within the AICPA. And this audit, this displays solely set off the AICPA steerage. We’re not overlaying PCAOB or another requirements. That’s simply FYI. That could be a yellow e-book. That is on your state or county. There’s one thing referred to as single audit. That is for the federal. If you happen to get that federal contract. [inaudible 00:06:33] is commonest, after which there may be the worldwide normal, which is IFRS.

Mohamed Metwally, Metwally CPA PLLC (06:41):

What’s audit? Now we’re speaking audit phases. So there’s three audit phases that we have now as an auditor to undergo. Each audit obtained its personal requirement. That is audit requirements, audit procedures that we require to carry out based mostly on once more, AICPA requirements. So the very first thing at excessive stage is planning. Planning is extra of, I wish to assess the danger of the engagement. So the entire goal is, am I going to enter an organization that’s going to go bankrupt within the subsequent two, three months? Am I going to audit an organization that by no means filed a tax return, it’s not in compliance with legal guidelines and regs? Am I going to audit an organization that there’s a fraud investigation happening?

Mohamed Metwally, Metwally CPA PLLC (07:39):

This give me an thought, not the numbers, it’s mainly what is that this engagement with reference to danger evaluation. In order that’s the planning. I’m going to ask questions. You count on your auditor to ship you perhaps a questionnaire about your going concern. And I’ll discuss extra about that. Or it should have walkthrough conferences, and what’s stroll via assembly? Effectively, we wish to assess your danger. We wish to see you probably have controls or processes in place to detect or catch a misstatement earlier than even occurring. So if you happen to’re doing a financial institution rec each month, that’s a management. If you happen to see something bizarre in your financial institution rec, you’ll be like, okay, you’re going to get a bookkeeper and be like, “Okay, what’s happening in right here?” That’s a management. That’s what we contemplate a management. In order that’s the planning. We simply want excessive stage. We wish to perceive this engagement. We wish to perceive the danger. That can assist us decide the place is that this engagement going to suit between the danger evaluation metrics. So is it excessive danger engagement, is it reasonable danger, is it low danger, and so forth and so forth.

Mohamed Metwally, Metwally CPA PLLC (08:51):

The second part is testing, and that’s great things. That is what are you going to see this record coming your method, asking for, “Hey, present the invoices, financial institution statements, payments, agreements, and all these items.” And mainly, the upper the danger in the 1st step or part one, the extra samples we require to audit. So you probably have sturdy controls, you probably have course of in place, you probably have been audited earlier than, all that factored in to get you to be a low danger and due to this fact cut back your pattern measurement. So if I’m going and looking out into your income, I’m saying, “Okay, I see that the fact is there may be as that’s 50 transactions. So I’m going to simply tweak 5 of these.” Effectively, if you happen to’re low danger, it may be 5 or 10. In order that’s why planning is essential as a result of we are going to construct on that, on audit.

Mohamed Metwally, Metwally CPA PLLC (09:53):

In order that’s testing. We mainly check each single line merchandise within the steadiness sheet that meets proprietor to actuality. And audit is as I discussed to start with of this webinar, we talked about audit is offering an affordable assurance. I’m not offering 100% optimistic assurance. I’m simply saying cheap assurance. And within the phrase cheap, which means I’ve a materiality threshold. So something under materiality, from my perspective, it won’t resolve in a professional opinion. Something above that threshold will really qualify my opinion, however so long as you’re working together with your auditor, so long as you’ve gotten this relationship of, okay, there’s something right here we missed, however we are able to go forward and suggest an adjustment entry, that we are able to modify it to get it again on monitor, you need to be fantastic.

Mohamed Metwally, Metwally CPA PLLC (10:52):

Once we qualify based mostly on adjusting relies on, okay, there may be materials misstatement everywhere in the steadiness sheet or revenue assertion, so everywhere in the financials that I can’t even decide the place is it. It’s far and wide. Or if there may be fraud happening, or if there may be unjustified transactions. So that’s transactions that the shopper can give you supported documentation or cheap rationalization. However we’re human. All of us do errors. So long as you’re feeling, “Oh yeah, proper. I missed that one or I missed that one and I’m keen to work with the auditor to get it corrected,” we name that corrected misstatement. So that doesn’t qualify or doesn’t change my opinion. The one time we qualify or change my opinion is when there’s a materials misstatement that we are able to’t decide tips on how to repair it as a result of it’s far and wide, or the shopper refuses to right. At that time, that may qualify you. So that is testing.

Mohamed Metwally, Metwally CPA PLLC (11:59):

After which the final step is reporting. Reporting is as necessary as planning and testing as a result of that’s what you get your report. That’s the place you’re going to connect that to the FDD. Good instance, and we’ve seen it far and wide, states now push again on the ASC 606. “Hey, that’s no sufficient disclosure. I wish to learn about how’s that income recognition applied.” In order that was a giant deal as a result of we didn’t actually know a few years in the past, tips on how to add that disclosure to fulfill the state’s requirement. And that’s why it’s crucial when you get your report collectively, to take a deep shut look into your footnote disclosure, your numbers, be certain the whole lot is lining up, be sure to’re disclosing the whole lot.

Mohamed Metwally, Metwally CPA PLLC (12:54):

And there’s a lot of disclosure within the reporting that is essential to the reader that you just in all probability as an proprietor or a member that you just wish to ship this message to whoever studying your report. So you probably have losses, you didn’t promote any franchise, you’ve obtained bunch of bills, that end result into losses in your monetary statements. And now as an auditor, we have now to reveal one thing referred to as going concern. And I’m going to do this. So at that time, do you wish to say, “Look, I do know I’m having losses, however in the identical time, I’m keen to contribute extra funds to get myself again on monitor, or I’m going to chop bills. These are the primary 12 months or two, there have been plenty of skilled charges, authorized charges and so forth, however I’m not anticipating that to proceed sooner or later.” So there’s plenty of messages that enterprise homeowners can ship to the reader and make it much more clear to whoever studying these financials. Any questions to date? Tom, good?

Tom DuFore, Large Sky Franchise Staff (14:02):

Sure. I feel that sounds nice. I don’t know if we have now some… We’ve obtained a number of of us on right here. If there are questions, you possibly can definitely kind it into the chat field or use the hand increase characteristic. I’ll unmute you so you possibly can discuss by the best way as we undergo this. However go forward for now, Mo. Let’s hold it rolling.

Mohamed Metwally, Metwally CPA PLLC (14:25):

Superior. So that’s planning. And the very first thing in planning we do, we are able to get your everlasting recordsdata. So what’s everlasting recordsdata? These are your formation, your franchise formation paperwork. So your state registration, your EIN letter that you just obtained from the IRS. When you’ve got a partnership, your partnership settlement. You may have debt so we have to see the mortgage. When you’ve got an FDD, we wish to see the FDD. When you’ve got a franchise settlement, we have to see the franchise settlement. This is essential and the primary 12 months audit will likely be troublesome as a result of it’s a must to collect all this data, however these we name it everlasting as a result of it’s everlasting. So subsequent 12 months you wouldn’t need to, until you alter the auditor, after all, however you wouldn’t have to supply these, however you’ll have to present something new.

Mohamed Metwally, Metwally CPA PLLC (15:18):

So when you get that arrange it’s as soon as and for all, that’s it, you’re not going to do this once more. And it’s crucial to have these useful as a result of these give me an thought about, “Okay, I’ve the whole lot I want to start out my audit.” So the everlasting recordsdata are the 1st step, an annual audit, get your organization documentation prepared for an audit, get all of your firm’s formation, partnership settlement, EIN, any documentation, FDD, another authorized documentation into your folder to be prepared for the audit.

Mohamed Metwally, Metwally CPA PLLC (15:51):

As I’ve talked about, assessing the danger of supplies statements, and I’m going to simply contact bases on these 4 areas. There’s a lot into that, however these are the primary ones that no one is aware of. And once you go to an audit, you’re anticipating your auditor to simply bounce in, get a bunch of numbers, ask for a bunch of requests, ask for a bunch of supporting documentation, invoices, and agreements. And that’s it. Audit is greater than that. And it’s good for the enterprise as properly, since you actually wish to know your monetary place. You wish to know, is there a going concern? Am I going to exit of enterprise quickly, or there may be any monetary indication that I’m in monetary hassle?

Mohamed Metwally, Metwally CPA PLLC (16:30):

And the audit can wait on this regard. It could actually come and say, “Look, I see going concern danger.” And I’ll clarify what goes concern. So going concern is mainly as an accountant, we have now a precept referred to as that we assume this firm will likely be in operation within the subsequent six to 12 months. So we’re going with the belief that the enterprise is secure and will likely be proceed in operation within the subsequent six to 12 months. If there may be something that increase doubt in regards to the assumption, we have now to learn about it. So what are these issues? Effectively, you probably have recurring losses. Yr over 12 months, you’re making losses, that give me a crimson flag. When you’ve got large debt and also you don’t have sufficient money, will you be capable of even make your debt fee? These are crimson flags that me as an auditor would have a look at your financials and be like, “Okay, I see a going concern danger right here.” That may be mitigated although.

Mohamed Metwally, Metwally CPA PLLC (17:33):

So we have now a danger, and that’s one thing you possibly can work on even earlier than the audit. “Okay, I’ve a going concern danger. I may need recurring losses. What I must do?” And that’s what we name administration analysis and a plan to mitigate that danger. So if you happen to’re going to give you a Phrase doc or a spreadsheet or no matter, and put into particulars your ideas about going concern. Is it a very legit danger? Effectively, any firm, the primary two, three years get losses. That’s not one thing distinctive about your organization. You possibly can clarify that, “Hey, I’ve optimistic as a result of I haven’t offered a franchise but, however I’m keen to contribute extra funds into this,” if you happen to’re in a position to drive and, “Hey, that is what’s happening that I can really be in enterprise within the subsequent six to 12 months. I’ve sufficient money, I’m contributing extra funds. I’m seeking to promote some belongings. I’m seeking to get loans.” All these options that may give the auditor a sign that, okay, yeah, that may be a going concern danger, however there’s a plan in place. That’s mainly what we’re attempting to get to.

Mohamed Metwally, Metwally CPA PLLC (18:44):

And as soon as we all know, okay, there’s a plan in place, then we are able to say, “Okay, we must put that in your disclosure. That’s going to be in your monetary assertion notes.” In order that’s why I’m saying monetary assertion notes are crucial as a result of they’ll inform the reader one thing in regards to the firm.

Mohamed Metwally, Metwally CPA PLLC (19:01):

And second factor is expounded events. That’s quite common. No person is aware of what’s that. You get all these questions on, “What is expounded events? What does that imply?” Effectively, you probably have a franchise and you’ve got one other firm that owned by the identical interval. So let’s say you’re a single man, you bought two corporations. You’ve obtained your franchise firm and you bought the core enterprise firm, and you’ve got shared bills. So that you’ll share workplace for the 2 companies. You sit in the identical room, your workers sit in the identical room, you do the whole lot with shared bills. And also you’re paying from one checking account, which is contained in the core enterprise, however in actuality it’s a must to share these bills.

Mohamed Metwally, Metwally CPA PLLC (19:41):

So there may be transactions between these two entities. There’s a transaction between the franchise and the core enterprise. And we have to disclose these. We have to be sure that the reader know that there’s associated occasion transaction. There’s no danger right here, however the danger will not be disclosing, and the danger is there may be not enterprise transactions. So we are able to simply say, “Okay,. I’m sealing one thing to my franchise for 5 bucks,” the place you possibly can promote it outdoors for 50 bucks. That’s how the danger come alongside. In order that’s why we have now to place into consideration that, okay, there may be associated events. Now we have to reveal these. Now we have to verify these are legit enterprise transactions.

Mohamed Metwally, Metwally CPA PLLC (20:28):

And we have now to sufficiently disclose them within the monetary statements so the reader would know that, okay, there may be associated events however we all know what’s these, what sort of transaction these are. These are bills, there’s income happening. What’s happening right here? I don’t see the income transactions typically. I see bills transactions, which is sensible, as a result of as I discussed, there may be advertising bills that it’s a must to allocate. You may have hire expense that you just in all probability allocate. Payroll it’s a must to allocate. So there may be plenty of shared bills you can really disclose and allocate.

Mohamed Metwally, Metwally CPA PLLC (21:06):

Legal guidelines and regs. Okay. These it’s a must to be in compliance. I get folks like, “I didn’t know that I’ve to file my tax return.” We as auditors, we have to be sure to are in compliance with all relevant legal guidelines and laws. So IRS is considered one of them, and massive considered one of them. So you possibly can simply, “Okay. Yeah. I’ve my tax return prepared. Is there another state or federal inspection I’ve to undergo or legal guidelines and regs that it’s a must to be in compliance with within the prime of your franchise requirement and IRS?” If there may be, properly we have to see these and it’s a must to disclose these. “Yeah, I’ve an outline right here. I’ve one thing that I’ve to file with the state separate.” Then we have to submit documentation that you’re in compliant.

Mohamed Metwally, Metwally CPA PLLC (22:02):

Last item right here is fraud evaluation. And people not in a smaller scale as a result of the proprietor most certainly concerned within the day-to-day operation, nevertheless it’s required. So once you get that questioning about, is there any fraud or have you learnt something happening that may increase a suspicion about fraud actions? All this it’s primary questioning that you’ve to concentrate on. And in addition, it offers you a sign about, “Okay, properly, I can arrange a course of in my enterprise that catch any fraud actions.” If you develop and you’ve got multiple or two workers, how are you going to watch the entire thing? So right here is the place audit can add worth different than simply auditing your books and issuing a report. It provide you with a touch about, “Okay, what I must do, what I must put in place so I can both detect or stop a fraud and materials misstatement.”

Mohamed Metwally, Metwally CPA PLLC (23:04):

So undergo the questionnaire and begin desirous about, “Oh, I can implement this.” So one frequent management or course of, financial institution rec, double signatures. When you’ve got somebody issuing a test, you require that the test has a second signature, so two folks really trying over the disbursement, not only one. That’s a typical factor within the fraud actions you can implement to stop any misstatement.

Mohamed Metwally, Metwally CPA PLLC (23:35):

Inherent hint and management dangers. So what’s these? Once more, we’re in a planning. The entire aim is to evaluate the danger. And I wish to spend slightly time and planning, however that’s mainly give us a sign about how dangerous is the engagement. Second part is testing and in testing, once more, we get your basic ledger that must be tied to your trial steadiness. Trial steadiness must be tied to your steadiness sheet or revenue assertion. After which we choose the samples. Stability sheet accounts, like money, account receivable, we try this on a affirmation foundation. We ship out affirmation to your financial institution straight. And if we don’t get affirmation, we do one thing referred to as various procedures, which is supporting documentation. So we are going to tie that in our invoices and subsequent funds and so forth and so forth.

Mohamed Metwally, Metwally CPA PLLC (24:29):

One other kind of testing we name the analytics and that’s like a commerce evaluation. And that’s one thing you possibly can counsel if there may be an account, like AR you get the affirmation and you’re feeling just like the auditor is requesting an enormous pattern, you possibly can counsel, “Hey, does it make sense so that you can simply do pattern evaluation?” As a result of AR going up, I’m anticipating my income to go up as properly. So if you happen to can seize this relationship, that’s referred to as pattern evaluation. It offers me some consolation, it offers me some assurance that the steadiness fluctuate in a singular course, that it must be fluctuating in that course. So if my income’s going up, I’m anticipating my AR to go up, my account receivable to go up.” So as a substitute of I’m going into the GL, pulling a pattern and doing all that substantive heavy work, I can simply do a pattern evaluation or ratio evaluation. In order that’s one thing you possibly can counsel to your auditor, “Hey, how about doing pattern evaluation or ratio evaluation?”

Mohamed Metwally, Metwally CPA PLLC (25:31):

And once more, it is a very last thing I’ve in a part, that’s the reporting and completion, so we get the results of the audit. Once more, so long as you’re working together with your auditor, so long as there’s a mutual understanding, I don’t suppose the auditor would modify an opinion, until there’s a misstatement far and wide, there’s a fraud exercise is happening, or the shopper or the companion, or the member refuses to cooperate and refuse to regulate their books accordingly.

Mohamed Metwally, Metwally CPA PLLC (26:05):

Last item, after we put that collectively, we get the monetary assertion draft, together with the disclosure. It’s important to approve these, so for the auditor to challenge. As soon as we get these again, then we challenge the report, and that may be hooked up to your FDD.

Mohamed Metwally, Metwally CPA PLLC (26:25):

So audit including worth. Okay. You have a look at audit as somebody come to your enterprise, choose a bunch of transaction and ask for supporting documentation. However how actually audit can add worth to your enterprise? You have a look at it like thrilling. And that’s one thing in our workplace that we implement. I don’t wish to simply go to your books and choose the samples and audit them. I need to have the ability to assist you out. I need to have the ability to be like, “Look, if you happen to implement that management or course of, you possibly can actually handle the enterprise higher. And in the identical time cut back your dangers, and on the similar time, cut back your pattern measurement. And due to this fact, cut back your charges, audit charges.”

Mohamed Metwally, Metwally CPA PLLC (27:09):

So how to do this? Okay. Management setting. Money. Financial institution rec occurs each month. So that you get the bookkeeper, the bookkeeper bounce in, do the financial institution rec, ship you the rec and also you look over the rec and also you formally log out on it. That’s a management that I can depend on. I can say, “Oh, they do the financial institution rec each month.” So I don’t need to go loopy and go verify each single month or each single account. I can simply choose a pair as a substitute of 5. In order that cuts my time and due to this fact cuts my audit charges. If there may be any management in AR, so somebody must be doing AR growing older schedule each month. So that you get the AR growing older, ensuring that nothing is past 90 days late, as a result of when you go above 90 days late, which means we have now to order for dangerous debt. That’s the AR. So that you’ve obtained somebody operating the AR growing older. Something above 90, it’s a must to go name them, “Hey, this bill is late. Please present us cash or give you a fee plan or one thing in place,” so it gained’t set off a reserve in your finish.

Mohamed Metwally, Metwally CPA PLLC (28:27):

After which simply right unknown misstatement, uncover fraud, if any. So audit too will assist you as a result of if there may be… and I’m speaking about perhaps an even bigger firm, not only one or two, when the proprietor is handoff. Now it provides worth as a result of if there’s any fraud actions, you possibly can catch it. Whereas the audit is once more, it’s an affordable assurance, it will probably’t catch each single factor, nevertheless it may give you a sign that, okay, properly we don’t really feel comfy about this space. So that you would possibly want to have a look at that. In order that’s worth added to you. Get your financials with a purpose to mirror the actual image of your enterprise.

Mohamed Metwally, Metwally CPA PLLC (29:05):

So mainly, your financials now are GAAP compliant. You possibly can’t take these financials and it’s reflecting the precise place, or at the least cheap assurance that your financials are reflecting the fact. It’s not money foundation. It’s a GAAP foundation. So it’s supplying you with a good suggestion about the place you’re at financially. “Do I’ve sufficient money to outlive? Do I want to extend? Do I must look over getting extra debt or promote an asset to energy my monetary place and so forth?” So have a look at it that method and you’ll see the audit actually add worth.

Mohamed Metwally, Metwally CPA PLLC (29:52):

Making ready for the audit. Correct books, correct books, correct books. That’s simply each auditor’s nightmare. When you go into an audit, your books must be good to go. So how do I be certain? Month-to-month, each month will get somebody to look over your books. Get a CPA to look over them, to verify they’re good to go. Bookkeeper is a should. I assume homeowners generally you’re feeling like, okay, I can do it myself. I can do it myself. And then you definately’re mainly doing the whole lot and also you drop the books, which is an important half. And then you definately get to the audit and also you’d be like, “Oh man, my books are usually not so as.” And that may end in increased audit charges. That can end in plenty of misstatements.

Mohamed Metwally, Metwally CPA PLLC (30:36):

So get somebody on a month-to-month foundation, or depends upon after all the quantity of your actions, however get somebody to look over that each month for you, at the least. Everlasting recordsdata, it is best to have already got a folder that has these everlasting recordsdata, your formation, your IRS, your FDDs, your franchise agreements, your debt agreements. It is best to have a everlasting folder that has all these everlasting recordsdata. Management efficiency. Once more, take credit score. That can cut back your audit charges. If you happen to’re already doing a month-to-month financial institution rec, say that to your auditor, “Hey, we’re doing a financial institution rec right here, each month and it’s signed off by or signed off by the proprietor, signed off by the supervisor. Can we take a credit score for that and cut back my pattern measurement? We’re doing an AR rec. Hey, we’re doing AR.” Say that to your auditor.

Mohamed Metwally, Metwally CPA PLLC (31:30):

Monetary assertion ready. So be certain each month to arrange your monetary statements. Your bookkeeper ought to be capable of produce each month a monetary assertion. Go over that. Log off on it. Be sure you log out and doc that. It’s not onerous, you are able to do it electronically. Get the bookkeeper, create a folder so that you can hold all these paperwork useful for the audit. Supporting documentation, after all, that’s a giant one. Invoices, payments, agreements, receipts. I might extremely suggest you go digital for this. Most individuals use, I’m not promoting QuickBooks, however you need to use any of these bookkeeping providers that do digital feed. So mainly you’re tying your checking account to QuickBooks they usually communicate the identical language so each week or so you possibly can see all of the transactions going into QuickBooks.

Mohamed Metwally, Metwally CPA PLLC (32:24):

And now simply to systematically saving your invoices, saving your financial institution statements, saving your payments, saving your settlement sheets, and all that, that may make your audit goes method smoother as a substitute of coming, getting the samples and also you’re going to simply go there, spinning your wheels, attempt to determine it out what is that this bill, or what’s does imply? That’s just about it for me. I do know I’m over the half-hour. So I’ll open it for questions, guys. Any questions for me, Tom?

Tom DuFore, Large Sky Franchise Staff (32:57):

Yeah. Yeah. Thanks, Mo. That was nice. That was nice data. We do have a few questions that got here in. One query was concerning states which would require the audit, what are the standards to be accredited as a franchisor, is a query?

Mohamed Metwally, Metwally CPA PLLC (33:14):

Okay, so that you want an audit. It depends upon the state, after all, however you want a gap steadiness sheet audit. In order that’s a requirement that you just want. The primary 12 months will likely be what we name the opening steadiness sheet. So mainly you simply began out, you deposit cash into your checking account, and now you’ve gotten money and fairness. In order that cut back steadiness sheet, solely steadiness sheet since you haven’t offered something and also you haven’t incurred any bills. So you don’t have any bills. You don’t have any income but. So there isn’t any revenue assertion. There isn’t any P and L, however there’s a steadiness sheet. And it goes via the identical actual course of. And naturally, it’s a listing of different charges, however as a result of they’re solely two accounts, nevertheless it goes via the identical course of that I simply talked about. The identical phases, the identical report, as a result of it’s an audit and it’s the auditor duty to challenge an correct auditor report.

Mohamed Metwally, Metwally CPA PLLC (34:16):

So that you mainly deposit the cash, you’ve gotten a gap steadiness sheet, after which, you’ve gotten money and you’ve got fairness. You get your steadiness sheet arrange, after which with monetary assertion disclosure, it’s a must to disclose the whole lot ASC 606 must be in there. It’s important to disclose your money. It’s important to disclose simply the common audit. However the one distinction you’ll solely have money and fairness in your steadiness sheet.

Tom DuFore, Large Sky Franchise Staff (34:46):

Thanks, Mo. And a query got here in. Is there a price or an estimated vary? I’d think about it perhaps depends upon the kind of enterprise or how lengthy it’s been working, however do you’ve gotten any ballparks you would use?

Mohamed Metwally, Metwally CPA PLLC (35:01):

It relies upon actually on how… There may be plenty of components, I might say. To begin with, how correct is your books? Second, how massive is your organization? So it normally fluctuate together with your franchise income. So if you happen to’re promoting franchise, that going to set off 606. Numerous disclosure, plenty of testing. However for opening steadiness sheet, that may differ from one and a half Ok to 2 Ok, that’s a gap steadiness sheet sort of vary. It goes up as you’ve gotten preliminary charges coming in that requires disclosure and requires after all, audit. And also you go up from there. However it actually depends upon what number of accounts you’ve gotten and the actions you’ve gotten as properly.

Mohamed Metwally, Metwally CPA PLLC (35:53):

So I might extremely suggest the franchise firm hold it easy. That can cut back your audit charges, and in the identical time, you’re nonetheless assembly your necessities. So hold it easy. Don’t mingle issues inside the franchise. Preserve separate books, fully separate books for the franchise, and that may cut back your audit charges.

Tom DuFore, Large Sky Franchise Staff (36:17):

Nice. Nice. Thanks very a lot. Extra questions for Mo, I do know I’ve one perhaps to ask. When it comes to timing, is there a typical timeline this takes to get ready and perhaps a window of time?

Mohamed Metwally, Metwally CPA PLLC (36:37):

It depends upon the auditor, who’s doing the audit. I can solely communicate up for myself. So in case your books are correct and in case your books are able to go, and we have now this kickoff assembly to start with the place I inform you, “Okay, right here’s my record. Right here’s my request record. I want 1, 2, 3, 4. Right here is my questionnaires, and I can return to focus on these areas proper right here.” Yeah, proper there. So going concern questionnaire, associated events, basic questions that give me concepts. So the sooner you give me again my request record, my supporting documentation, your everlasting recordsdata, and the sooner you give me these questionnaires, the earlier I can end the audit, as a result of I’ve the whole lot I want.

Mohamed Metwally, Metwally CPA PLLC (37:28):

So in a small audit, yeah, I can take between… A gap steadiness sheet wouldn’t take, I might say per week, three enterprise days to 5 enterprise days. As soon as we get the affirmation again from the financial institution, as soon as we get your planning up and operating, as soon as we get the report accredited by you, we must be fantastic and up. A bigger one with franchise happening, promoting franchise and there’s royalties and all that, it’d take greater than that, relying on how responsive is the shopper. Sadly, generally you get inside the day-to-day operation and also you completely neglect in regards to the audit. But when the shopper is absolutely responsive, one to 2 weeks, and we’re speaking about if you’re within the 100K, 500K vary, it is going to be about two weeks, give or take.

Tom DuFore, Large Sky Franchise Staff (38:20):

Okay. That’s nice. That’s nice. So basically, the upper income, the extra transactions, the longer it should finish up-

Mohamed Metwally, Metwally CPA PLLC (38:29):


Tom DuFore, Large Sky Franchise Staff (38:29):

It’ll simply take you longer to undergo that?

Mohamed Metwally, Metwally CPA PLLC (38:31):

Precisely. Precisely.

Tom DuFore, Large Sky Franchise Staff (38:33):

Okay, nice. That’s very useful. So it feels like perhaps for an rising model or a brand new franchise, or that perhaps one to 2 week window for a model that’s simply getting began sounds fairly reasonable there.

Mohamed Metwally, Metwally CPA PLLC (38:47):


Tom DuFore, Large Sky Franchise Staff (38:49):

I feel it’s a terrific level with what you shared right here, even for a brand new franchise model. All of these items nonetheless need to be gone via and reviewed. So I feel this has been nice, nice data.

Tom DuFore, Large Sky Franchise Staff (39:02):

Mo, thanks once more for being on the present and on our weekly webinar collection and permitting us to have an opportunity to share it on our podcast too. If you happen to’re desirous about reaching out to Mo, you possibly can attain him at That’s M-E-T-W-A-L-L-Y And it’s within the present notes too. Mo, thanks once more for being right here. And that’s the episode in the present day, of us. So please be sure to subscribe to our podcast and please, please, please give us a evaluate as we’re nonetheless early on on this. Keep in mind, if you happen to or anybody you already know may be able to franchise our enterprise, please contact us at Thanks for tuning in, and we look ahead to having you again on the subsequent episode.

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