How are misstatements considered material in the audit of Auntie Annes' financial statements?

According to Auntie Annes's 2024 Franchise Disclosure Document, misstatements in the consolidated financial statements are considered material if they could influence the judgment of a reasonable user of those statements. Specifically, if there is a substantial likelihood that these misstatements, whether individually or in the aggregate, would impact the decisions made by someone relying on the financial statements, they are deemed material. This definition is used by the independent auditor, Grant Thornton LLP, when auditing the consolidated financial statements of GoTo Foods LLC, the parent company of Auntie Anne's Franchisor SPV LLC.

The auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. However, it's important to note that reasonable assurance is not absolute, and there's always a risk that a material misstatement may not be detected, especially if it results from fraud involving collusion, forgery, or intentional omissions. The auditor's responsibilities include exercising professional judgment, assessing the risks of material misstatement, and evaluating the appropriateness of accounting policies and the reasonableness of significant accounting estimates made by management.

For a prospective Auntie Annes franchisee, this means that the financial statements presented in the FDD are audited with the goal of ensuring they are fairly presented and free from material misstatements that could mislead potential investors or franchisees. However, franchisees should recognize the inherent limitations of an audit and the possibility that some misstatements, particularly those resulting from fraud, may not be detected. Therefore, it is crucial for potential franchisees to carefully review the financial statements and seek professional advice if needed to make informed decisions.