What does the auditor mean by 'reasonable assurance' when auditing 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, 'reasonable assurance' in the context of an audit means that the auditor aims to achieve a high level of confidence that the financial statements are free from material misstatement, whether due to fraud or error. However, it's crucial to understand that reasonable assurance is not absolute.
Therefore, even when an audit is conducted according to generally accepted auditing standards, there is no guarantee that all material misstatements will be detected. The risk of not detecting a misstatement is higher when it results from fraud, as fraud may involve sophisticated methods like collusion, forgery, or intentional misrepresentation, which are designed to evade internal controls.
For a prospective C12 Group franchisee, this means that while the financial statements have been audited, there's still a degree of risk that some misstatements, especially those resulting from fraud, may not have been detected. This doesn't necessarily indicate a problem with C12 Group's financials, but rather reflects the inherent limitations of the auditing process. It is important for franchisees to understand the audited financial statements and perhaps seek advice from a financial professional.