What level of assurance does an audit provide for Boulder Designs' financial statements?
Boulder_Designs 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.
Source: Item 23 — RECEIPT (FDD pages 50–217)
What This Means (2025 FDD)
According to Boulder Designs' 2025 Franchise Disclosure Document, an audit of the company's financial statements aims to provide 'reasonable assurance' that the financial statements are free from material misstatement, whether due to fraud or error. The audit is conducted in accordance with auditing standards generally accepted in the United States of America (GAAS).
However, the FDD clarifies that 'reasonable assurance' is not absolute. While it represents a high level of confidence, it does not guarantee that an audit will always detect every material misstatement. The risk of not detecting a misstatement resulting from fraud is higher than that of detecting one resulting from error because fraud may involve intentional concealment or misrepresentation.
The auditor's responsibilities include exercising professional judgment, assessing the risks of material misstatement, examining evidence on a test basis, understanding internal control (though not expressing an opinion on its effectiveness), and evaluating accounting policies and estimates. The auditor must also conclude whether there are conditions that raise substantial doubt about Boulder Designs' ability to continue as a going concern.
In summary, the audit provides a potential Boulder Designs franchisee with a reasonable level of confidence in the accuracy of the franchisor's financial statements, but it is important to recognize that it is not a guarantee against all misstatements, especially those resulting from fraud.