What happens if the audit of Black Bear Diner detects a material misstatement?
Black_Bear_Diner Franchise · 2025 FDDAnswer from 2025 FDD Document
se law, including fraud in the inducement, or (ii) disclaiming reliance on any statement made by any franchisor, franchise seller, or other person acting on behalf of the franchisor. This provision supersedes any other term of any document executed in connection with the franchise.
[COMPLETED AND EXECUTED ON THE FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby have duly executed this Agreement.
| 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 audito | |
| 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 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. |
Source: Item 23 — RECEIPT (FDD pages 56–243)
What This Means (2025 FDD)
According to Black Bear Diner's 2025 Franchise Disclosure Document, the audit's objective is to provide reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's opinion. While reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit will always detect a material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error because fraud may involve activities such as 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, the auditors will exercise professional judgment and maintain professional skepticism, identify and assess the risks of material misstatement, and design and perform audit procedures responsive to those risks, including examining evidence regarding the amounts and disclosures in the financial statements. They will also obtain an understanding of internal control relevant to the audit and evaluate the appropriateness of accounting policies and the reasonableness of significant accounting estimates.
The auditors are required to communicate with those charged with governance regarding the planned scope and timing of the audit, significant audit findings, and any material weaknesses in internal control that they identified during the audit. This communication ensures transparency and allows for corrective action to be taken. However, the document does not specify the exact steps Black Bear Diner would take to correct the misstatement.