What is the purpose of understanding internal controls during an audit of Black Bear Diner?
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.
Source: Item 23 — RECEIPT (FDD pages 56–243)
What This Means (2025 FDD)
According to the 2025 FDD, understanding internal controls is a component of performing an audit for Black Bear Diner. The audit aims to identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and to design and perform audit procedures responsive to those risks.
The purpose of understanding internal control is to design audit procedures that are appropriate for the given circumstances. However, the FDD explicitly states that the auditors do not express an opinion on the effectiveness of Black Bear Diner's internal control.
In addition to understanding internal controls, the audit also involves evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. The auditors must also conclude whether there are conditions or events that raise substantial doubt about Black Bear Diner's ability to continue as a going concern.