When auditing Buona's financial statements, are auditors required to express an opinion on the effectiveness of Buona's internal controls?
Buona 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 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 generally accepted auditing standards 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, including omissions, 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.
In performing an audit in accordance with generally accepted auditing 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 the Company's internal control. Accordingly, no such opinion is expressed.
Source: Item 22 — CONTRACTS (FDD page 78)
What This Means (2025 FDD)
According to Buona's 2025 Franchise Disclosure Document, the independent auditor is not required to express an opinion on the effectiveness of the company's internal controls. While the auditors must obtain an understanding of internal control relevant to the audit, this is done to design appropriate audit procedures, not to provide an opinion on the overall effectiveness of Buona's internal control systems.
This means that the audit focuses on whether the financial statements are free from material misstatement. The auditors' responsibilities include identifying and assessing risks of material misstatement, examining evidence supporting the financial statement amounts and disclosures, and evaluating the appropriateness of accounting policies and estimates. However, the audit is not designed to provide assurance that Buona's internal controls are operating effectively.
For a prospective franchisee, this is a standard practice. Most franchisors' audits focus on the accuracy and reliability of the financial statements rather than the effectiveness of internal controls. However, it is important for a franchisee to understand that while the financial statements are audited, there is no guarantee that the company's internal controls are perfect or that fraud or errors will be completely eliminated.
Therefore, while reviewing Buona's financial statements, a potential franchisee should focus on the overall financial health and stability of the company, rather than relying on the audit to provide assurance about the effectiveness of internal controls. Additional due diligence, such as speaking with existing franchisees and conducting independent research, is crucial to assess the risks and opportunities associated with investing in a Buona franchise.