What procedures are included in identifying and assessing the risks of material misstatement of the consolidated financial statements for 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' 2025 Franchise Disclosure Document, the auditor's responsibilities include specific procedures for identifying and assessing risks of material misstatement in the consolidated financial statements. These procedures are designed to ensure that the financial statements are free from material misstatement, whether due to fraud or error. The auditor exercises professional judgment and maintains professional skepticism throughout the audit to achieve this.
The auditor's procedures involve identifying and assessing the risks of material misstatement, 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 obtains 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. They also evaluate the overall presentation of the consolidated financial statements. Finally, the auditor 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.
These procedures are conducted in accordance with auditing standards generally accepted in the United States of America (GAAS). The auditor is also 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.