What is the auditor's responsibility in evaluating the appropriateness of accounting policies used by Burros Fries?
Burros_Fries Franchise · 2024 FDDAnswer from 2024 FDD Document
In performing an audit in accordance with GAAS, 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 Burros & Fries Franchise, Inc.'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 Burros & Fries Franchise, Inc.'s ability to continue as a going concern for a reasonable period of time.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 53)
What This Means (2024 FDD)
According to the 2024 Burros Fries FDD, the auditor's responsibility includes evaluating the appropriateness of the accounting policies used by the company. This evaluation is part of a broader audit performed in accordance with generally accepted auditing standards (GAAS). The auditor also assesses the reasonableness of significant accounting estimates made by management and evaluates the overall presentation of the financial statements.
In practical terms, this means the auditor must determine if Burros Fries has selected and applied suitable accounting policies for its specific business and industry. For example, the auditor would review how Burros Fries recognizes revenue, accounts for franchise fees, and values its assets and liabilities. The auditor must also ensure that these policies are consistently applied from period to period.
This evaluation provides assurance to potential Burros Fries franchisees that the financial statements are presented fairly and in accordance with accounting principles generally accepted in the United States of America. It helps to ensure that the financial information is reliable and can be used to make informed decisions about investing in a Burros Fries franchise. The auditor's assessment, along with other audit procedures, contributes to the overall credibility of the financial statements.