What is the level of assurance that an audit of Bumble Roofing provides regarding material misstatements?
Bumble_Roofing Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' 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 can arise from fraud or error and 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 consolidated financial statements.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 53)
What This Means (2025 FDD)
According to Bumble Roofing's 2025 Franchise Disclosure Document, an audit aims to provide reasonable assurance that the consolidated financial statements are free from material misstatement, whether due to fraud or error. The audit report will include the auditor's opinion on the financial statements. Reasonable assurance is considered a high level of assurance, but it is not absolute, meaning there is no guarantee that an audit will always detect every material misstatement.
The document clarifies that the risk of not detecting a material misstatement resulting from fraud is higher than that of one resulting from error. This is because fraud may involve activities like collusion, forgery, intentional omissions, misrepresentations, or overriding internal controls, which are designed to be deceptive and harder to detect. Misstatements are considered material if they are likely to influence the judgment of a reasonable user of the financial statements.
The auditors' responsibilities include exercising professional judgment and maintaining professional skepticism throughout the audit. They identify and assess the risks of material misstatement, design and perform audit procedures responsive to those risks, and examine evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditors also obtain an understanding of internal control relevant to the audit but do not express an opinion on the effectiveness of the company's internal control. They evaluate the appropriateness of accounting policies and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the financial statements. Finally, the auditors conclude whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern.