How are misstatements, including omissions, considered material in the audit of Best Brains?
Best_Brains 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 generally accepted auditing standards 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, 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 42)
What This Means (2025 FDD)
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 to assess the significance of any errors or omissions found during the audit 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.
Reasonable assurance, while a high level of assurance, is not absolute, and there is no guarantee that an audit conducted according to generally accepted auditing standards will always detect a material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than that of one resulting from error because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
For a prospective Best Brains franchisee, this means that the audited financial statements should provide a reliable view of the company's financial position. However, it is important to recognize the inherent limitations of an audit and the possibility that some material misstatements may not be detected. Franchisees should carefully review the financial statements and consider seeking professional advice to fully understand the financial health of Best Brains.