What must the auditor do regarding the risks of material misstatement of Browns Chicken's financial statements?
Browns_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with generally accepted accounting standards, 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 Brown's Chicken, LLC'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 Brown's Chicken, LLC'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 audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 42)
What This Means (2025 FDD)
According to Browns Chicken's 2025 Franchise Disclosure Document, the auditor has specific responsibilities regarding the risk of material misstatement in the company's financial statements. The auditor is required to identify and assess these risks, whether they are due to fraud or error. This assessment then informs the design and execution of audit procedures that are responsive to the identified risks. These procedures include examining evidence related to the amounts and disclosures within the financial statements, which is done on a test basis.
Furthermore, the auditor must gain an understanding of Browns Chicken's internal control mechanisms that are relevant to the audit. This understanding is crucial for designing appropriate audit procedures but does not extend to expressing an opinion on the overall effectiveness of the company's internal controls. The auditor also evaluates the appropriateness of the accounting policies used by Browns Chicken, the reasonableness of significant accounting estimates made by the management, and the overall presentation of the financial statements.
In addition to these responsibilities, the auditor must exercise professional judgment and maintain professional skepticism throughout the audit. They must also determine whether there are conditions or events that, when considered together, raise substantial doubt about Browns Chicken's ability to continue as a going concern for a reasonable period. Finally, the auditor is obligated to communicate with those charged with governance regarding the planned scope and timing of the audit, any significant audit findings, and certain internal control-related matters identified during the audit.