Is an audit a guarantee that all material misstatements will be detected in Aw's financial statements?
Aw Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a 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, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these remarks and the information of this website is published in good faith and for general information purpose only. Franchimp.com does not make any warranties about the completeness, reliability, and
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Aw's 2025 Franchise Disclosure Document, an audit provides reasonable assurance, but it is not an absolute guarantee that all material misstatements will be detected. 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 including their opinion. However, 'reasonable assurance' is defined as a high level of assurance, but not absolute assurance. Therefore, an audit is not a guarantee that all material misstatements will be detected.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error. This is because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. These actions are designed to conceal the fraud, making it more difficult to detect through standard auditing procedures.
For a prospective Aw franchisee, this means that while the financial statements have been audited, there is still a risk that some misstatements, especially those resulting from fraud, may not have been detected. This is a standard disclaimer in the auditing profession. Franchisees should consider this when making financial decisions based on the audited statements and should perhaps seek additional independent verification or analysis if they have concerns.