During an audit for Black Bear Diner, what level of judgment and skepticism should be exercised?
Black_Bear_Diner Franchise · 2025 FDDAnswer from 2025 FDD Document
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 BBDI 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.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about BBDI LLC's ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.
Source: Item 23 — RECEIPT (FDD pages 56–243)
What This Means (2025 FDD)
According to the 2025 FDD, during an audit for Black Bear Diner, professional judgment should be exercised and professional skepticism should be maintained throughout the audit. The audit also involves identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, and designing and performing audit procedures responsive to those risks. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis.
Furthermore, the audit includes obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. However, the audit does not express an opinion on the effectiveness of Black Bear Diner's internal control. The appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management are also evaluated, as well as the overall presentation of the financial statements.
Finally, the audit concludes whether there are conditions or events that raise substantial doubt about Black Bear Diner's ability to continue as a going concern for a reasonable period of time. 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.