When auditing Best Western's financial statements, is the purpose to express an opinion on the effectiveness of the company's internal control?
Best_Western Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of 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 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.
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 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 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 effectiveness of the Company's internal control. Accordingly, no such opinion is expressed.
Source: Item 23 — Receipts (FDD pages 108–413)
What This Means (2025 FDD)
According to Best Western's 2025 Franchise Disclosure Document, the purpose of the audit of Best Western's financial statements is not to express an opinion on the effectiveness of the company's internal control. Instead, the audit aims to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error, and to issue an auditor's report that includes an opinion.
The audit is conducted in accordance with auditing standards generally accepted in the United States of America (GAAS). These standards require the auditors to identify and assess the risks of material misstatement of the financial statements, design and perform audit procedures responsive to those risks, and obtain an understanding of internal control relevant to the audit. However, the understanding of internal control is for the purpose of designing audit procedures and not for expressing an opinion on its effectiveness.
Therefore, while the auditors do consider internal controls as part of their audit process, the ultimate goal is to provide an opinion on the fair presentation of the financial statements, not on the effectiveness of Best Western's internal control system. This is a standard practice in financial auditing, where the focus is on the accuracy and reliability of the financial statements rather than a comprehensive evaluation of internal controls.