What level of assurance does an audit provide regarding the detection of material misstatements in Aira Fitness's financial statements?
Aira_Fitness Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditor's 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 GAAS 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 23 — **RECEIPTS (FDD pages 59–254)
What This Means (2025 FDD)
According to Aira Fitness's 2025 Franchise Disclosure Document, an audit aims to provide reasonable assurance that the financial statements are free of material misstatements, whether due to fraud or error. The auditor's report includes an opinion on the financial statements. This reasonable assurance is considered a high level of assurance, but it is not absolute.
The FDD clarifies that an audit conducted following Generally Accepted Auditing Standards (GAAS) does not guarantee the detection of every material misstatement. There's an inherent risk that some misstatements may go unnoticed, especially those resulting from fraud, which can involve sophisticated methods like collusion, forgery, or intentional omissions.
The document defines material misstatements as those that could individually or collectively influence the judgment of a reasonable user of the financial statements. Therefore, while an audit provides a strong level of confidence in the accuracy of the financial statements, prospective Aira Fitness franchisees should understand its limitations and the potential for undetected misstatements.