Is the auditor expressing an opinion on the effectiveness of Bw Premier Collection's internal control?
Bw_Premier_Collection Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditor's 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 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 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 the Company's internal control. Accordingly, no such opinion is expressed.
Source: Item 23 — Receipts (FDD pages 54–203)
What This Means (2025 FDD)
According to the 2025 FDD, the auditor's report for Bw Premier Collection's parent company, Best Western International, Inc., explicitly states that the audit of the financial statements does not include expressing an opinion on the effectiveness of the company's internal control. Instead, the audit aims to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion on the financial statements themselves.
This means that while the auditors, Ernst & Young LLP, do gain an understanding of internal controls relevant to the audit, this understanding is solely for the purpose of designing appropriate audit procedures. The auditors' responsibility is focused on the accuracy and reliability of the financial statements presented by Best Western International, Inc., and not on independently verifying the effectiveness of the internal controls that produce those statements.
For a prospective Bw Premier Collection franchisee, this highlights the importance of conducting their own due diligence regarding the franchisor's financial health and internal control environment. While the financial statements are audited, the effectiveness of the underlying controls is not independently verified. Therefore, potential franchisees should consider seeking additional assurances or conducting their own investigations to gain comfort with the franchisor's financial management practices.