What is the auditor's responsibility regarding material misstatements in Better Blend's financial statements?
Better_Blend Franchise · 2024 FDDAnswer from 2024 FDD Document
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.
- 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.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
- Conclude whether, in our judgment, 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 a reasonable period of time.
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 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 including 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.
For a prospective Better Blend franchisee, this means that the financial statements presented have been audited to a certain standard, but there is still a risk that material misstatements, especially those resulting from fraud, may not be detected. A misstatement is considered material if it could influence the judgment of a reasonable user of the financial statements.
To fulfill their responsibility, the auditor will exercise professional judgment and maintain professional skepticism throughout the audit. They will identify and assess the risks of material misstatement, whether due to fraud or error, and design and perform audit procedures responsive to those risks, including examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor will also obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, but not to express an opinion on the effectiveness of Better Blend's internal control. Finally, the auditor will evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the financial statements, and conclude whether there are conditions or events that raise substantial doubt about Better Blend's ability to continue as a going concern.