What happens if fraud involves collusion when auditing 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, the auditor's responsibility 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. However, this reasonable assurance is not absolute, and there is no guarantee that an audit will always detect a material misstatement.
The FDD states that the risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. This means that if individuals within Aw's organization collude to commit fraud, it becomes more difficult for the auditor to detect the misstatement during the audit process.
In performing an audit, the auditor will exercise professional judgment and maintain professional skepticism, identify and assess the risks of material misstatement, obtain an understanding of internal control, evaluate the appropriateness of accounting policies, and conclude whether there are conditions that raise substantial doubt about Aw's ability to continue as a going concern. These procedures are designed to mitigate the risk of undetected fraud, but collusion can still pose a significant challenge.