What is the auditor's responsibility concerning significant accounting estimates made by Bombs Away's management?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements 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 entity's internal control. Accordingly, we express no such opinion. An audit also includes 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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 responsibility includes evaluating the reasonableness of significant accounting estimates made by the management of Bombs Away. This evaluation is a part of the broader audit process, which aims to provide reasonable assurance that the financial statements are free from material misstatement. The auditor's assessment extends to the appropriateness of the accounting policies used and the overall presentation of the financial statements.
To fulfill this responsibility, the auditor plans and performs the audit to obtain evidence about the amounts and disclosures in the financial statements. This involves assessing the risks of material misstatement, whether due to fraud or error, and designing audit procedures responsive to those risks. However, the audit is not conducted to express an opinion on the effectiveness of Bombs Away's internal control.
For a prospective Bombs Away franchisee, this means that an independent CPA has reviewed the financial statements, including the estimates made by Bombs Away's management, and has provided an opinion on whether these statements present fairly the company's financial position. This offers a level of assurance that the financial information is reliable and has been prepared in accordance with generally accepted accounting principles. Franchisees can take comfort that the auditor has specifically looked at the reasonableness of key estimates that could impact the financial picture.