What is the auditor's responsibility regarding the detection of material misstatements in Ben Jerrys' consolidated financial statements due to fraud versus error?
Ben_Jerrys Franchise · 2025 FDDAnswer from 2025 FDD Document
raud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date that the consolidated financial statements are issued.
Auditors' Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' 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 there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the\neffectiveness of the Company's internal control. Accordingly, no such opinion is expressed.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 89–133)
What This Means (2025 FDD)
According to Ben Jerrys' 2025 Franchise Disclosure Document, the auditor's objective is to obtain reasonable assurance that the consolidated financial statements are free from material misstatement, whether due to fraud or error, and to issue 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 GAAS (Generally Accepted Auditing Standards) will always detect a material misstatement.
The document clarifies 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 sophisticated methods such as 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. The auditor's procedures include identifying and assessing the risks of material misstatement, whether due to fraud or error, and designing and performing audit procedures responsive to those risks.
In practical terms, this means that while the auditor is responsible for seeking to uncover material misstatements, a Ben Jerrys franchisee should understand that the audit is not a guarantee against all misstatements. The risk is higher for fraud due to its intentional and often concealed nature. A prospective franchisee should consider this when evaluating the financial statements and may want to seek independent financial advice to fully understand the risks involved.