How does the auditor define 'material' misstatements in C12 Group's financial statements?
C12_Group 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 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 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 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.
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to C12 Group's 2025 Franchise Disclosure Document, the auditor's report defines material misstatements in the financial statements. 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.
This definition is crucial for prospective franchisees because it sets the standard by which the accuracy and reliability of C12 Group's financial statements are judged. A material misstatement could mislead a potential franchisee, affecting their decision to invest. The auditor's responsibility is to provide reasonable assurance that the financial statements are free from such material misstatements.
The FDD also notes that 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. This highlights the importance of the auditor's role in not only identifying errors but also in detecting potential fraudulent activities that could impact the financial health and transparency of C12 Group.
For a prospective franchisee, understanding this definition and the auditor's responsibilities is essential for evaluating the financial stability and transparency of C12 Group. It provides a framework for assessing the credibility of the financial information presented in the FDD and making informed investment decisions.