What is the auditor's responsibility regarding evidence regarding the disclosures in the consolidated financial statements for Carbones Pizzeria?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the consolidated 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 judgement made by a reasonable user based on the consolidated 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 consolidated 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 consolidated 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 estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to the 2025 FDD, the auditor's responsibilities regarding the audit of Carbones Pizzeria's consolidated financial statements include obtaining reasonable assurance about whether the financial statements are free from material misstatement, whether due to fraud or error. The auditor issues a report that includes their opinion, but this assurance is not absolute and doesn't guarantee the detection of every material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error.
To fulfill these responsibilities, the auditor must exercise professional judgment and maintain professional skepticism throughout the audit. They identify and assess the risks of material misstatement, design and perform audit procedures responsive to those risks, including examining evidence regarding the amounts and disclosures in the consolidated financial statements on a test basis. The auditor also obtains an understanding of internal control relevant to the audit to design appropriate procedures, though they do not express an opinion on the effectiveness of the company's internal control.
Furthermore, the auditor evaluates the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management. They also evaluate the overall presentation of the consolidated financial statements. Finally, the auditor concludes whether there are conditions or events that raise substantial doubt about Carbones Pizzeria's ability to continue as a going concern for a reasonable period of time.
For a prospective Carbones Pizzeria franchisee, this means that the financial statements have been examined by an independent party who has assessed their fairness and reliability. However, it is important to recognize the limitations of an audit, as it is not a guarantee against all misstatements, especially those resulting from fraud. Franchisees should still carefully review the financial statements and consult with their own financial advisors to make informed decisions.