For Bft, what factors might make detecting a material misstatement resulting from fraud more difficult than detecting one resulting from error?
Bft 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 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.
Source: Item 23 — RECEIPTS (FDD pages 79–265)
What This Means (2025 FDD)
According to Bft's 2025 Franchise Disclosure Document, the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error. This is because fraud may involve actions specifically designed to conceal the misstatement.
The FDD indicates that fraud can include collusion, where multiple parties work together to hide the misstatement. It can also involve forgery, where documents are falsified, or intentional omissions, where key information is left out. Misrepresentations, where false statements are made, and the override of internal control, where established procedures are ignored, are also potential components of fraud.
These elements make fraud more difficult to detect because they are actively concealed, whereas errors are typically unintentional and may be easier to uncover through standard auditing procedures. For a prospective Bft franchisee, this highlights the importance of a robust auditing process and internal controls to minimize the risk of undetected fraud.