When auditing Afuri Ramen Dumpling's financial statements, what must be identified and assessed?
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 the 2024 FDD, when auditing Afuri Ramen Dumpling's financial statements, the auditor's responsibilities include assessing the risks of material misstatement, whether due to fraud or error. This involves considering internal control relevant to the preparation and fair presentation of the financial statements in order to design appropriate audit procedures. However, the audit does not aim to express an opinion on the effectiveness of the entity's internal control.
The audit also requires evaluating the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements. The auditor's objective is to obtain reasonable assurance that the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion.
It is important to note that reasonable assurance is a high level of assurance but not absolute, and there is always a risk that a material misstatement may not be detected, especially if it results from fraud involving collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if they could influence the judgment of a reasonable user of the financial statements.