What is the auditor's objective in auditing Bombs Away's financial statements?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
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Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of 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.
924 W. 75th Street Suite 120 - 189 Naperville, IL 60565 +1 (815) 348-2421 omar@napercpa.com
- 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 the Company'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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2024 FDD)
According to Bombs Away's 2024 Franchise Disclosure Document, the auditor's objective is to obtain reasonable assurance that the financial statements are free of material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. The auditor's responsibility includes planning and performing the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. This involves performing procedures to obtain audit evidence regarding the amounts and disclosures in the financial statements. The auditor's procedures are selected based on their judgment, including assessing the risks of material misstatement due to fraud or error.
The auditor also considers internal control relevant to the entity's preparation and fair presentation of the financial statements to design appropriate audit procedures, but not to express an opinion on the effectiveness of the entity's internal control. The auditor evaluates the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements. The auditor's report includes an opinion on whether the financial statements present fairly the financial position of Bombs Away as of the balance sheet date and the results of its operations and cash flows for the period then ended, in accordance with accounting principles generally accepted in the United States of America.
It is important to note that reasonable assurance is a high level of assurance, but it is not absolute, and there is no guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement. 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.
For a potential Bombs Away franchisee, this means that the financial statements included in the FDD have been examined by an independent accountant who has provided an opinion on their fairness and reliability. This can provide some comfort to the franchisee, but it is important to remember that the audit is not a guarantee of the accuracy of the financial statements, and the franchisee should still carefully review the statements and consult with their own financial advisor.