What is the auditor's responsibility regarding internal control relevant to the Better Blend audit?
Better_Blend Franchise · 2024 FDDAnswer from 2024 FDD Document
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Auditor's Responsibility for the Audit of the Financial Statement
Our objectives are to obtain reasonable assurance about whether the financial statement as a whole is 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 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 statement, 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 43)
What This Means (2024 FDD)
According to Better Blend's 2024 Franchise Disclosure Document, the auditor's responsibility regarding internal control is to obtain an understanding of internal control relevant to the audit. This understanding is used to design audit procedures that are appropriate for the circumstances. However, the auditor's responsibility does not extend to expressing an opinion on the effectiveness of Better Blend's internal control, and the auditor's report explicitly states that no such opinion is expressed.
The auditor's objectives include obtaining reasonable assurance that the financial statement is 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 Generally Accepted Auditing Standards (GAAS) will always detect a material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
In performing an audit in accordance with GAAS, the auditor exercises professional judgment and maintains professional skepticism throughout the audit. They identify and assess the risks of material misstatement of the financial statement, whether due to fraud or error, and design and perform audit procedures responsive to those risks. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor also evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluates the overall presentation of the financial statements. Finally, the auditor concludes whether there are conditions or events that raise substantial doubt about Better Blend's ability to continue as a going concern for a reasonable period of time.
In addition, the auditor is required to communicate with those charged with governance regarding the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters identified during the audit. This communication ensures that relevant parties are informed about the audit process and any significant issues that arise.