What does the auditor mean by 'professional skepticism' when auditing C12 Group?
C12_Group Franchise · 2025 FDDAnswer from 2025 FDD Document
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 C12 Group, LLC'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 The C12 Group LLC's ability to continue as a going concern for a reasonable period of time.
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to C12 Group's 2025 Franchise Disclosure Document, the auditor's responsibilities include exercising professional judgment and maintaining professional skepticism throughout the audit. In practical terms, this means the auditor must approach the audit with a questioning mind and critically assess the information provided by C12 Group's management. They cannot simply accept everything at face value. This skepticism is crucial for identifying potential misstatements, whether due to fraud or error, in C12 Group's financial statements.
The auditor's professional skepticism involves a continuous assessment of the risks of material misstatement. This includes scrutinizing evidence, evaluating the appropriateness of accounting policies, and assessing the reasonableness of significant accounting estimates made by C12 Group's management. By maintaining a skeptical attitude, the auditor aims to obtain reasonable assurance that the financial statements are free from material misstatements.
For a prospective C12 Group franchisee, this aspect of the audit provides a level of confidence in the financial statements presented. Knowing that an independent auditor has rigorously examined the financials with professional skepticism suggests that the information is more reliable. This can be particularly important for franchisees who rely on the financial statements to make informed decisions about their investment. However, it is important to remember that even with professional skepticism, an audit provides reasonable, but not absolute, assurance. The auditor's skepticism reduces the risk of material misstatements going undetected, but it does not eliminate that risk entirely.