What does the FDD say about the auditor's responsibility if internal controls are overridden at Belocal?
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 responsibilities 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. However, reasonable assurance is not absolute, so an audit is not a guarantee that all material misstatements will be detected.
The FDD states 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. Therefore, if internal controls are overridden at Belocal, it increases the risk that the auditor may not detect a material misstatement.
In assessing the financial statements, the auditor considers misstatements material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users of the financial statements. This means that the auditor focuses on misstatements that could impact the decisions of investors, lenders, or other stakeholders who rely on Belocal's financial information.