What is the auditor's responsibility regarding internal controls during the audit of Annex Brands?
Annex_Brands Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with generally accepted auditing standards, we:
- Obtain an understanding of internal control relevant to the audit 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 Company's internal control. Accordingly, no such opinion is expressed.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Source: Item 21 — Financial Statements (FDD page 109)
What This Means (2025 FDD)
According to Annex Brands' 2025 Franchise Disclosure Document, the auditor's responsibility regarding internal control is to obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. However, this understanding is not for the purpose of expressing an opinion on the effectiveness of Annex Brands' internal control, and the auditor explicitly states that no such opinion is expressed. This means the auditor assesses internal controls only to the extent necessary to plan the audit, not to provide assurance on the quality of those controls.
This approach is standard in financial audits. The auditor's primary goal is to determine whether the financial statements are free from material misstatement. Assessing internal controls is a means to that end, helping the auditor identify areas where misstatements are more likely to occur. The auditor then tailors the audit procedures to focus on those high-risk areas.
For a prospective Annex Brands franchisee, this means the financial statements have been audited, but the audit does not provide any guarantee that Annex Brands' internal controls are effective. While the auditor is required to communicate certain internal control-related matters identified during the audit to those charged with governance, this communication is not a comprehensive assessment of internal control effectiveness. Franchisees should be aware that the audit focuses on the fairness of the financial statements, not the strength of the company's internal control systems.
Therefore, while the audit provides some level of comfort regarding the accuracy of the financial statements, it does not eliminate the need for franchisees to conduct their own due diligence. This due diligence might include assessing the company's financial management practices and internal control procedures to gain a more complete understanding of the company's financial health and stability.