What is the objective of the auditors when reviewing the financial statements for 360 Painting?
360_Painting Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 56)
What This Means (2025 FDD)
According to the 2025 FDD, the auditors' objective is to obtain reasonable assurance that the financial statements of Premium Service Brands, LLC, the affiliate of 360 Painting, are free from material misstatements, whether due to fraud or error. The auditors also aim to issue a report that includes their opinion on the financial statements. Reasonable assurance implies a high level of confidence, but it is not an absolute guarantee that all material misstatements will be detected.
The FDD clarifies that the risk of not detecting a material misstatement resulting from fraud is higher than that of error. This is because fraud may involve intentional actions such as collusion, forgery, intentional omissions, misrepresentations, or the overriding of internal controls. A misstatement is considered material if it is likely to influence the judgment of a reasonable user of the financial statements, either individually or in the aggregate.
To achieve their objectives, the auditors perform several key tasks. They exercise professional judgment and maintain professional skepticism throughout the audit. They identify and assess the risks of material misstatement, whether due to fraud or error, and design and perform audit procedures responsive to those risks, including examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditors also evaluate the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements. Finally, they conclude whether there are conditions or events that raise substantial doubt about Premium Service Brands, LLC's ability to continue as a going concern.