What does the audit of Bonchon not guarantee regarding the detection of material misstatements?
Bonchon 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 generally accepted auditing standards 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.
Source: Item 23 — RECEIPTS (FDD pages 92–536)
What This Means (2025 FDD)
According to Bonchon's 2025 Franchise Disclosure Document, while the objective of an audit is to provide reasonable assurance that the financial statements are free from material misstatement, it is not an absolute guarantee. The auditor's report expresses an opinion, but it does not ensure that all material misstatements will be detected. This is a standard limitation in the auditing profession.
The document clarifies that 'reasonable assurance' is considered a high level of assurance, but it's not absolute. Therefore, even when an audit is conducted according to generally accepted auditing standards, there's still a risk that a material misstatement might not be found. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error because fraud may involve intentional concealment.
For a prospective Bonchon franchisee, this means that while Bonchon's financial statements are audited, there is still a degree of risk that some misstatements, especially those resulting from fraudulent activities, may not be detected by the auditors. This is a standard disclaimer in audited financial statements and doesn't necessarily indicate any specific issues with Bonchon. However, it would be prudent for a potential franchisee to consider this inherent limitation when reviewing the financial statements and to possibly seek independent financial advice.