What is the auditor required to evaluate regarding accounting policies used by Auntie Annes?
Auntie_Annes Franchise · 2024 FDDAnswer from 2024 FDD Document
In performing an audit in accordance with US 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 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 consolidated 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 106–366)
What This Means (2024 FDD)
According to Auntie Anne's 2024 Franchise Disclosure Document, the auditor is responsible for evaluating the appropriateness of the accounting policies used by management in preparing the consolidated financial statements. This evaluation is part of a broader audit performed in accordance with the U.S. Generally Accepted Auditing Standards (US 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, and to issue an auditor's report that includes their opinion.
In practical terms, this means the auditor must assess whether the accounting principles selected by Auntie Anne's are suitable for their business and industry, and whether they have been applied correctly. This involves understanding the nature of Auntie Anne's transactions, the complexity of their financial operations, and the specific accounting standards that apply to their business. The auditor will review the choices made by Auntie Anne's management regarding revenue recognition, expense recognition, asset valuation, and liability measurement to ensure they align with US GAAS.
Furthermore, the auditor also evaluates the reasonableness of significant accounting estimates made by Auntie Anne's management. These estimates might include things like the allowance for doubtful accounts, depreciation methods, or the valuation of intangible assets. By evaluating both the appropriateness of accounting policies and the reasonableness of estimates, the auditor provides an independent assessment of the fairness and reliability of Auntie Anne's financial statements.
This process helps to ensure that prospective franchisees and other stakeholders can rely on the financial information provided by Auntie Anne's to make informed decisions. It also provides a level of assurance that the company is adhering to established accounting standards and practices, which promotes transparency and accountability.