During an audit for Afuri Ramen Dumpling, what level of judgment and skepticism should be exercised?
Afuri_Ramen_Dumpling Franchise · 2024 FDDAnswer from 2024 FDD Document
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Source: Item 23 — Receipts (FDD pages 50–189)
What This Means (2024 FDD)
According to Afuri Ramen Dumpling's 2024 Franchise Disclosure Document, an auditor's responsibility during a financial audit involves professional judgment and a risk assessment of potential misstatements. The audit standards require the auditor to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
The auditor's procedures are based on their assessment of the risks of material misstatement, whether due to fraud or error. This assessment includes considering internal controls relevant to the company's preparation and fair presentation of its financial statements. However, the audit's purpose is not to express an opinion on the effectiveness of the entity's internal control.
In practical terms, this means that the auditor must exercise professional skepticism and judgment throughout the audit process. They must gather sufficient and appropriate evidence to support their opinion on the financial statements, evaluate the accounting policies used, and assess the reasonableness of significant estimates made by management. The auditor must also evaluate the overall presentation of the financial statements to ensure they are fairly presented in accordance with accounting principles generally accepted in the United States of America.