QFA: Check the scope and cost of franchise audits

In guidance published on 6 November 2026, the Quality Franchise Association (QFA) stressed the need to examine a franchisor’s right to inspect records and operations. For those considering the Philippine franchise market, the guidance focuses on four issues: the scope of inspections, responsibility for costs, legal limits on contractual terms and how to respond to findings.

Establish what can be inspected

According to the guidance, the purpose of each type of inspection set out in the agreement should be clear. Before buying a franchise, prospective franchisees need to understand which documents may be requested and how they will be reviewed.

The records to specify include receipts, sales reports, refund records, inventory records and other franchise-related documents. It is also important to clarify how far back an audit can go and how long documents must be retained.

Who may carry out an inspection is a separate issue. The QFA recommends specifying whether the brand’s own staff or an independent auditor may enter the business premises and request copies of documents.

The inspection procedure and timing should also be clear. The agreement may provide for advance notice, reviews conducted without a site visit, or unannounced visits for specific reasons. The guidance emphasises that there should be no ambiguity about when and how these rights may be exercised.

Clarify who pays

One key point highlighted by the QFA is the potential for audit costs to be passed on to the franchisee. A contract may state that the franchisor pays for routine audits, but that this changes if unreported sales exceed an agreed threshold.

It is therefore important to read not only the general audit provision but also any clause that transfers responsibility for costs to the other party. The agreed basis for charging should be set out in the contract, rather than simply assumed once the business is operating.

The guidance recommends requesting a complete list of potential charges. These include external auditors’ fees, travel, accommodation, document copying and follow-up audits.

Reasonable cost limits, the evidence needed to support charges and prior approval for substantial expenditure should also be agreed. The contract should distinguish between underpayments, interest, penalties and audit costs, so that it is clear what is being charged and why.

Legal limits apply to the agreement

The QFA clarified that the Philippines has no single comprehensive law governing the entire franchise relationship. However, this does not mean there are no specific rules to follow.

The guidance refers to Executive Order No. 169, series of 2022, which sets minimum conditions for franchise agreements involving micro, small and medium-sized enterprises. These include full disclosure of fees and a clear statement of both parties’ rights and responsibilities.

Article 1306 of the Civil Code is also relevant. It allows parties to set contractual terms, provided they do not conflict with the law, morals, good customs, public order or public policy.

In the context of audits, these provisions underline the need for clearly defined obligations. A contract review should cover both the right to inspect and any associated charges.

Allow an opportunity to respond

The process outlined in the guidance does not end with collecting documents. The QFA also recommends agreeing sufficient time for the franchisee to submit receipts or corrections in response to the findings.

If a disagreement arises, it should be clear whether an independent review can be requested. This includes specifying who will select the auditor and who will cover the additional cost. In this way, the process is agreed before any dispute over the findings occurs.

Practical reminder: Before signing, make sure the scope of inspections, the basis for charges and the opportunity to respond are set out in writing. Do not consider audit rights in isolation from the associated costs and procedures.