During the audit of Body20's financial statements, is an opinion expressed on the effectiveness of Sequel Brands Holdings, LLC's internal control?
Body20 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.
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 Sequel Brands Holdings, LLC's internal control. Accordingly, no such opinion is expressed.
Source: Item 23 — RECEIPT (FDD pages 74–251)
What This Means (2025 FDD)
According to the 2025 FDD, the audit report of Sequel Brands Holdings, LLC's financial statements does not include an opinion on the effectiveness of its internal control. The auditors' responsibilities include obtaining an understanding of internal control relevant to the audit to design appropriate procedures, but explicitly state that this is not for the purpose of expressing an opinion on the effectiveness of Sequel Brands Holdings, LLC's internal control. Therefore, the audit report will not offer any assurance regarding the effectiveness of the company's internal controls.
This means that while the auditors assess internal controls to plan their audit procedures, they do not provide an independent opinion on whether those controls are well-designed or operating effectively. A prospective Body20 franchisee should be aware that the financial statements' audit focuses on the fair presentation of the financials themselves, not on the strength of the company's internal control systems.
This is a common practice in financial statement audits, where the primary goal is to provide assurance on the accuracy and fairness of the financial statements. A separate internal control audit, such as one conducted under Sarbanes-Oxley (SOX) requirements, would be necessary to obtain an opinion on the effectiveness of internal controls. Franchisees who want to understand the risks better may consider asking Body20 for any internal control reports or assessments that may have been conducted separately from the financial statement audit.