Does the auditor express an opinion on the effectiveness of Boulder Designs' internal control?
Boulder_Designs 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 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.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
Source: Item 23 — RECEIPT (FDD pages 50–217)
What This Means (2025 FDD)
According to Boulder Designs' 2025 Franchise Disclosure Document, the auditor does not express an opinion on the effectiveness of the company's internal control. The auditor's report states that while an understanding of internal control is obtained to design appropriate audit procedures, the audit is not performed for the purpose of expressing an opinion on the effectiveness of Boulder Designs' internal control. Therefore, no such opinion is expressed.
This means that the audit focuses on the accuracy and fairness of the financial statements themselves, rather than on evaluating the systems and processes Boulder Designs has in place to ensure accurate financial reporting. A prospective franchisee should understand that the financial statements have been reviewed for accuracy, but the systems that generate those statements have not been independently assessed for their effectiveness in preventing errors or fraud.
This is a fairly standard practice for franchise audits, particularly for smaller franchise systems. A full internal control audit can be significantly more expensive and time-consuming. However, it is important for potential franchisees to be aware of this limitation and to conduct their own due diligence on Boulder Designs' financial management practices. This could include asking detailed questions about their accounting procedures, reviewing their financial performance over time, and speaking with existing franchisees about their experiences.
While the absence of an opinion on internal control effectiveness doesn't automatically indicate a problem, it does place a greater burden on the prospective franchisee to assess the financial stability and management practices of Boulder Designs. Understanding the scope and limitations of the audit is a crucial part of making an informed investment decision.