What is the auditor's responsibility regarding the influence of misstatements on the economic decisions of users of Belocal's financial statements?
Belocal 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 financial statements.
Source: Item 23 — RECEIPTS (FDD pages 71–242)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, the auditor's responsibility includes 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. The document clarifies that reasonable assurance is a high level of assurance, but it is not absolute, so there is no guarantee that an audit will always detect a material misstatement.
The FDD specifies that misstatements are considered material if they could reasonably be expected to influence the economic decisions of users of the financial statements, whether these misstatements occur individually or in the aggregate. This means the auditor must consider whether any errors or fraudulent activities could impact the decisions of someone relying on Belocal's financial statements.
The document also notes that the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error. This is because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control, making it more difficult to detect during an audit. Therefore, the auditor must be especially vigilant in looking for signs of fraud when auditing Belocal's financials.