What is the auditor required to do regarding internal controls during the audit of C12 Group?
C12_Group Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with generally accepted auditing standards, we:
- 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.
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 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to the 2025 FDD, during the audit of C12 Group's financial statements, the auditor is required to obtain 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 for the purpose of expressing an opinion on the effectiveness of C12 Group's internal control, and the auditor's report will not include such an opinion. The auditor is also required to communicate with those charged with governance regarding certain internal control related matters identified during the audit.
In simpler terms, the auditor needs to understand how C12 Group's internal controls work to plan the audit effectively. This involves assessing the risk of material misstatement in the financial statements, whether due to fraud or error, and designing audit procedures that respond to these risks. By understanding the internal controls, the auditor can determine the appropriate scope and nature of testing needed to ensure the financial statements are fairly presented.
However, it's important to note that the auditor's responsibility is not to provide assurance on the overall effectiveness of C12 Group's internal controls. The auditor's focus is on detecting material misstatements in the financial statements, not on evaluating whether the internal controls are operating effectively. This is a crucial distinction for prospective franchisees to understand, as it clarifies the scope and limitations of the audit process.