What level of assurance does an audit provide regarding the accuracy of Beggars Pizza's financial statements?
Beggars_Pizza 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 generally accepted auditing standards 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 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 39)
What This Means (2025 FDD)
According to Beggars Pizza's 2025 Franchise Disclosure Document, an audit aims to provide reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. The auditor issues a report that includes their opinion on the financial statements. Reasonable assurance is considered a high level of assurance, but it is not absolute, meaning that an audit is not a guarantee that all material misstatements will be detected.
The FDD emphasizes that the risk of not detecting a material misstatement resulting from fraud is higher than that of error. This is because fraud may involve activities like collusion, forgery, intentional omissions, misrepresentations, or the overriding of internal controls, which are designed to prevent errors but may be circumvented in cases of fraud. Misstatements are considered material if they are likely to influence the judgment of a reasonable user of the financial statements, either individually or in the aggregate.
In conducting an audit, the auditor exercises professional judgment and maintains professional skepticism. They identify and assess the risks of material misstatement, design and perform audit procedures to respond to those risks, and examine evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor also obtains an understanding of internal control relevant to the audit but does not express an opinion on the effectiveness of Beggars Pizza's internal control. They evaluate the appropriateness of accounting policies, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements. Finally, the auditor concludes whether there are conditions or events that raise substantial doubt about Beggars Pizza's ability to continue as a going concern.