How are misstatements considered material in the context of Best Brains' financial statements?

According to Best Brains' 2025 Franchise Disclosure Document, misstatements, including omissions, 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. This definition is used by the auditor when assessing the fairness and accuracy of Best Brains' financial statements. 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.

For a prospective Best Brains franchisee, this means that the financial statements presented in Item 21 of the FDD should provide a reasonably accurate picture of the franchisor's financial health. The auditor, in forming their opinion, considers whether any misstatements could sway a reasonable person's judgment when reviewing the financials. This is important because potential franchisees rely on these statements to assess the financial stability and performance of Best Brains before investing in a franchise.

It's important to note that while auditors aim to detect material misstatements, reasonable assurance is not absolute. There's always a risk that some misstatements, particularly those resulting from fraud, may go undetected. Therefore, prospective franchisees should not rely solely on the audited financial statements but should also conduct their own due diligence, including consulting with financial advisors and attorneys, to make informed investment decisions.