How does the auditor define 'material misstatements' in the context of Canine Dimensions' financial statements?
Canine_Dimensions Franchise · 2025 FDDAnswer from 2025 FDD Document
My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to error or fraud, and to issue an auditor's report that includes my opinion. Reasonable assurance
is a high level of assurance but 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 controls. Misstatements are considered material if there is 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 21 — FINANCIAL STATEMENTS (FDD page 35)
What This Means (2025 FDD)
According to Canine Dimensions' 2025 Franchise Disclosure Document, the auditor, Francis J April CPA LLC, defines material misstatements in the financial statements. The auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to error or fraud. However, reasonable assurance is not absolute, and there is no guarantee that an audit will always detect a material misstatement.
The auditor notes that the risk of not detecting a material misstatement resulting from fraud is higher than that of one resulting from error because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls.
The 2025 FDD specifies that 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. This definition is crucial for prospective Canine Dimensions franchisees as it highlights the threshold at which inaccuracies in the financial statements are considered significant enough to impact decision-making. Franchisees should understand that the audit aims to provide reasonable, but not absolute, assurance against such material misstatements.