What is the auditor's responsibility regarding misrepresentations in 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 objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. The audit is conducted in accordance with generally accepted auditing standards in the United States of America (GAAS). This assurance, while high, is not absolute, and there's no guarantee that an audit will always detect a material misstatement.
The FDD specifies that the risk of not detecting a material misstatement resulting from fraud is higher than that of one resulting from error. This is because fraud may involve intentional actions such as collusion, forgery, intentional omissions, misrepresentations, or the overriding of internal controls.
For a prospective Belocal franchisee, this means that while the financial statements have been audited, there is still a risk of misstatement, especially due to potential fraudulent activities. Misstatements are considered material if they could reasonably be expected to influence the economic decisions of users of these financial statements. Therefore, franchisees should understand the limitations of an audit and consider other factors when making investment decisions.