What is the auditor's responsibility regarding professional skepticism during the audit of Bevaris Alliance?
Bevaris_Alliance Franchise · 2024 FDDAnswer from 2024 FDD Document
isk 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.
In performing an audit in accordance with generally accepted auditing standards, 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 Bevaris Alliance Franchise System, LLC'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.
Source: Item 23 — RECEIPT (FDD pages 22–88)
What This Means (2024 FDD)
According to the 2024 FDD, in performing an audit in accordance with generally accepted auditing standards, the auditor must exercise professional judgment and maintain professional skepticism throughout the audit of Bevaris Alliance. This means the auditor should have a questioning mind and critically assess the audit evidence, rather than assuming that management is always honest. This skepticism is crucial for identifying and assessing the risks of material misstatement in the financial statements, whether due to fraud or error.
The auditor's responsibilities extend to designing and performing audit procedures that are responsive to the identified risks. These procedures include examining evidence related to the amounts and disclosures in the financial statements on a test basis. The auditor also needs to understand Bevaris Alliance's internal control relevant to the audit, but not for the purpose of expressing an opinion on its effectiveness. Therefore, the auditor does not express an opinion on the effectiveness of Bevaris Alliance's internal control.
Furthermore, the auditor must evaluate the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management. They also evaluate the overall presentation of the financial statements to ensure they are fairly presented. The auditor is also required to conclude whether there are conditions or events that raise substantial doubt about Bevaris Alliance's ability to continue as a going concern. Finally, the auditor must 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.