What is the auditor's responsibility in exercising professional judgment and maintaining professional skepticism throughout the audit of Aunt Millies Bakeries?
Aunt_Millies_Bakeries Franchise · 2025 FDDAnswer from 2025 FDD Document
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 consolidated financial statements.
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 consolidated 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 consolidated 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\neffectiveness of Perfection Bakeries, Inc.'s internal control. Accordingly, no such opinion is expressed.
Source: Item 23 — RECEIPT (FDD pages 44–196)
What This Means (2025 FDD)
According to Aunt Millies Bakeries's 2025 Franchise Disclosure Document, the auditor has specific responsibilities during the audit of the company's financial statements. The auditor's primary objective is to obtain reasonable assurance that the consolidated financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. While reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit conducted according to Generally Accepted Auditing Standards (GAAS) will always detect a material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if they would likely influence the judgment made by a reasonable user of the financial statements.
In performing an audit in accordance with GAAS, the auditor must exercise professional judgment and maintain professional skepticism throughout the audit. This involves identifying and assessing the risks of material misstatement in the consolidated financial statements, whether due to fraud or error, and designing and performing audit procedures responsive to those risks. These procedures include examining evidence regarding the amounts and disclosures in the consolidated financial statements on a test basis. The auditor also needs to obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, but not to express an opinion on the effectiveness of the company's internal control.
Furthermore, the auditor evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the consolidated financial statements. The auditor also concludes whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern for a reasonable period of time. 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.