During an audit, is professional judgment required for Apricot Lane?
Apricot_Lane Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
- 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.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
Source: Item 23 — RECEIPTS (FDD pages 51–222)
What This Means (2025 FDD)
According to Apricot Lane's 2025 Franchise Disclosure Document, auditors are expected to exercise professional judgment during the audit of financial statements. This means that the auditors must use their expertise, knowledge, and training to make informed decisions about the audit process and the evidence they gather. This includes maintaining professional skepticism throughout the audit. Auditors must not assume that management is dishonest or honest, but rather approach the audit with a questioning mind and critically assess the evidence presented to them.
As part of exercising professional judgement, the auditors identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error. They design and perform audit procedures responsive to those risks, including examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditors also obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.
Furthermore, the auditors evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. Finally, the auditors conclude whether, in their judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the company's ability to continue as a going concern for a reasonable period of time. These responsibilities ensure that the audit is conducted thoroughly and objectively, providing a reliable basis for the auditor's opinion on the financial statements.