During audits, what level of judgment is expected from professionals assessing Brain Balance's financial statements?
Brain_Balance Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing audits in accordance with GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audits.
- 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 audits 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.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits, significant audit findings, and certain internal control-related matters that we identified during the audits.
Source: Item 23 — RECEIPTS (FDD pages 72–292)
What This Means (2025 FDD)
According to Brain Balance's 2025 Franchise Disclosure Document, auditors are expected to exercise professional judgment and maintain professional skepticism throughout the audits of the financial statements. This involves identifying and assessing the risks of material misstatement, whether due to fraud or error, and designing and performing audit procedures responsive to those risks. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. Auditors must 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.
Furthermore, the auditors must conclude whether, in their judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Brain Balance's ability to continue as a going concern for a reasonable period of time. The auditors are also required to communicate with those charged with governance regarding the planned scope and timing of the audits, significant audit findings, and certain internal control-related matters identified during the audits.
It is important to note that the auditor's objective is 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 their opinion. However, reasonable assurance is not absolute assurance and, therefore, is not a guarantee that audits 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.