What is the auditor's responsibility regarding independence from Beauty Bungalows?

According to Beauty Bungalows's 2025 Franchise Disclosure Document, the auditor is required to be independent of the company and to meet ethical responsibilities based on the relevant ethical requirements pertaining to the audits. The auditor's responsibilities are further detailed in the section of the report dedicated to the auditor's responsibilities for the audit of the financial statements. The auditor must obtain sufficient and appropriate audit evidence to provide a basis for their opinion.

Specifically, the auditor's objectives include obtaining reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and issuing an auditor's report that includes their opinion. While reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit conducted according to Generally Accepted Auditing Standards (GAAS) will always detect a material misstatement.

The risk of not detecting a material misstatement resulting from fraud is higher than that of error because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if they would likely influence the judgment of a reasonable user of the financial statements.

To perform the audit in accordance with GAAS, the auditor must exercise professional judgment and maintain professional skepticism throughout the audits. They must 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, including examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor must also obtain an understanding of internal control relevant to the audits to design appropriate audit procedures, but not to express an opinion on the effectiveness of Beauty Bungalows's internal control. Finally, the auditor must evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the financial statements, and conclude whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern.