When auditing Bath Tune Up, what is the auditor required to obtain an understanding of?
Bath_Tune_Up Franchise · 2025 FDDAnswer from 2025 FDD Document
ol. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing 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 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 financial statements.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 51–52)
What This Means (2025 FDD)
According to the 2025 Bath Tune Up Franchise Disclosure Document, when performing an audit in accordance with Generally Accepted Auditing Standards (GAAS), the auditor is required to obtain an understanding of internal control relevant to the audit. This understanding is for the purpose of designing audit procedures that are appropriate in the circumstances. However, the audit does not aim to express an opinion on the effectiveness of Bath Tune Up's internal control, and accordingly, no such opinion is provided.
This means the auditor needs to understand how Bath Tune Up manages its financial processes and systems to ensure that the audit procedures are tailored to address potential risks of misstatement. This understanding helps the auditor to focus on areas where errors or fraud are more likely to occur. It is important to note that while the auditor assesses internal controls, the audit's primary goal is to provide an opinion on the fairness of the financial statements, not to evaluate the overall quality of the company's internal control system.
For a prospective Bath Tune Up franchisee, this indicates that the franchisor's financial statements have been examined by an independent auditor who has assessed the internal controls to the extent necessary to conduct a thorough audit. However, it does not mean that the auditor has provided an opinion on the effectiveness of these controls. Franchisees should be aware that the audit is focused on the accuracy and reliability of the financial statements, and not on providing assurance about the strength of the company's internal control system.