During the audit, what level of judgment and skepticism is expected to be exercised when assessing Bambu's financial statements?
Bambu Franchise · 2025 FDDAnswer from 2025 FDD Document
In perfonning 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 financial statements, whether due to fraud or error, and design and perfonn 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 Bambu Franchising, LLC'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 financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Bambu Franchising, LLC's ability to continue as a going concern for a reasonable period of time.
Source: Item 23 — Receipts (FDD pages 52–209)
What This Means (2025 FDD)
According to Bambu's 2025 Franchise Disclosure Document, the auditor is expected to exercise professional judgment and maintain professional skepticism throughout the audit of the financial statements. This involves identifying and assessing the risks of material misstatement, whether due to fraud or error, and designing audit procedures responsive to those risks. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement.
Reasonable assurance, as defined in the FDD, is a high level of assurance but not absolute, meaning that an audit conducted according to Generally Accepted Auditing Standards (GAAS) does not guarantee the detection of every material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than that of one resulting from error because fraud may involve intentional concealment or misrepresentation.
The auditor must also evaluate the appropriateness of the accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements. Additionally, the auditor must conclude whether there are conditions or events that raise substantial doubt about Bambu's ability to continue as a going concern. This comprehensive approach ensures a thorough and critical review of Bambu's financial statements.