When auditing Aira Fitness's financial statements, what type of risks should be identified and assessed?
Aira_Fitness Franchise · 2025 FDDAnswer from 2025 FDD Document
Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents. The Company places its cash and any cash equivalents with a limited number of high-quality financial institutions and do not exceed the amount of insurance provided on such deposits.
The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities and other items, as well as the reported revenues and expenses. Actual results could differ from those estimates.
The Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome, if any, arising out of any such matter will have a material adverse effect on its business, financial condition or results of operations. As of December 31, 2024, December 31, 2023, & December 31, 2022, the Company has not reported any lawsuit or known plans of litigation by or against the Company.
Source: Item 23 — **RECEIPTS (FDD pages 59–254)
What This Means (2025 FDD)
According to Aira Fitness's 2025 Franchise Disclosure Document, financial instruments that could expose the company to credit risk consist of cash and cash equivalents. To mitigate this risk, Aira Fitness states that it places its cash and cash equivalents with a limited number of high-quality financial institutions and ensures that the deposits do not exceed the amount of insurance provided. This indicates that during an audit, the auditor should assess the creditworthiness of the financial institutions used by Aira Fitness and verify that the cash deposits are within the insured limits.
Additionally, the financial statements' preparation requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent items, and reported revenues and expenses. The actual results could differ from these estimates. This means that the audit should focus on the reasonableness and accuracy of these estimates, ensuring they are based on sound judgment and reliable data.
Furthermore, Aira Fitness may be subject to pending legal proceedings and regulatory actions encountered in the ordinary course of business. Although the company does not anticipate that the final outcome of these proceedings will have a material adverse effect on its business, financial condition, or results of operations, the auditor should still evaluate the potential impact of these legal and regulatory matters on Aira Fitness's financial statements. This evaluation would involve reviewing the nature of the proceedings, assessing the likelihood of an unfavorable outcome, and estimating the potential financial exposure.