When conducting an audit for C12 Group, what level of judgment and skepticism is required?
C12_Group Franchise · 2025 FDDAnswer from 2025 FDD Document
atements 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 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\nerror, and design and perform audit procedures responsive to those risks. Such procedures include\nexamining, on a test basis, evidence regarding the amounts and disclosures in the combined 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.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting\nestimates made by management, as well as evaluate the overall presentation of the combined financial statements.
Source: Item 22 — CONTRACTS (FDD page 46)
What This Means (2025 FDD)
According to the 2025 FDD, when performing an audit for C12 Group, auditors must exercise professional judgment and maintain professional skepticism throughout the audit. This means the auditor must use their expertise and experience to make informed decisions during the audit process. They must also maintain a questioning mind and critically assess the information provided by C12 Group, remaining alert to the possibility of misstatement due to fraud or error.
The auditor's responsibilities include identifying and assessing the risks of material misstatement in the financial statements, whether due to fraud or error. To address these risks, auditors design and perform audit procedures, such as examining evidence related to the amounts and disclosures in the financial statements on a test basis. The auditor must obtain an understanding of C12 Group's internal control system to design appropriate audit procedures, though the audit does not aim to express an opinion on the effectiveness of the internal control itself.
Furthermore, the auditor evaluates the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by C12 Group's management. They also assess the overall presentation of the financial statements to ensure they are fairly presented. Finally, the auditor must conclude whether there are conditions or events that raise substantial doubt about C12 Group's ability to continue as a going concern for a reasonable period of time.
Overall, the audit aims to obtain reasonable assurance that the financial statements are free from material misstatement, providing a high level of confidence, though not an absolute guarantee. The auditor's report will include their opinion on whether the financial statements present fairly the financial position of C12 Group in accordance with generally accepted accounting principles.