What is the auditor's responsibility regarding internal controls when auditing 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.
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 53)
What This Means (2024 FDD)
According to Burros Fries' 2024 Franchise Disclosure Document, when performing an audit in accordance with generally accepted auditing standards (GAAS), the auditor obtains an understanding of internal control relevant to the audit. This understanding is used to design audit procedures that are appropriate for the circumstances. However, the audit is not performed for the purpose of expressing an opinion on the effectiveness of Burros Fries' internal control, and therefore, no such opinion is expressed.
The auditor's responsibility includes identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error. They design and perform audit procedures responsive to those risks, including examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor also evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the financial statements.
Furthermore, the auditor must conclude whether there are conditions or events that raise substantial doubt about Burros Fries' ability to continue as a going concern for a reasonable period. They are also required to communicate with those charged with governance regarding the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters identified during the audit.
For a prospective Burros Fries franchisee, this means that while the financial statements are audited, the audit's focus is on the fair presentation of the financials and not on providing assurance about the strength of the company's internal controls. The franchisee should be aware that the auditor's understanding of internal controls is limited to what is necessary to design appropriate audit procedures.