What is the auditor's responsibility regarding accounting estimates made by management 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.
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 23 — RECEIPTS (FDD pages 51–222)
What This Means (2025 FDD)
According to Apricot Lane's 2025 Franchise Disclosure Document, the auditor has a responsibility to evaluate the reasonableness of significant accounting estimates made by the company's management. This evaluation is part of a broader audit performed in accordance with auditing standards generally accepted in the United States of America (GAAS). The auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. This involves exercising professional judgment and maintaining professional skepticism throughout the audit.
To fulfill this responsibility, the auditor must 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, which include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor also obtains an understanding of internal control relevant to the audit to design appropriate audit procedures, though they do not express an opinion on the effectiveness of the company's internal control.
In addition to evaluating accounting estimates, the auditor also assesses the appropriateness of the accounting policies used and the overall presentation of the financial statements. Furthermore, the auditor must conclude whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern. The auditor is required to communicate with those charged with governance regarding the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters identified during the audit.
For a prospective Apricot Lane franchisee, this indicates that the financial statements of the company have been subjected to an independent audit, where the auditor has specifically assessed the reasonableness of the accounting estimates made by management. This provides a level of assurance that the financial information presented is fairly stated and reliable, which can be important for making informed investment decisions.