What is the auditor's responsibility regarding professional judgment and skepticism during the Carbones Pizzeria audit?
Carbones_Pizzeria Franchise · 2025 FDDAnswer from 2025 FDD Document
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 Carbones Pizzeria FDD, the auditor has specific responsibilities relating to professional judgment and skepticism during the audit of the company's financial statements. The auditor's objectives are to obtain reasonable assurance that the consolidated financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. While reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit will always detect a material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error because fraud may involve acts like collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
In performing the audit, the auditor must exercise professional judgment and maintain professional skepticism throughout the process. This involves identifying and assessing the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and designing and performing audit procedures responsive to those risks. These procedures include examining evidence regarding the amounts and disclosures in the consolidated financial statements on a test basis. The auditor must also obtain an understanding of internal control relevant to the audit in order to design appropriate audit procedures, although the purpose is not to express an opinion on the effectiveness of the company's internal control.
Furthermore, the auditor is responsible for evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. The auditor must also conclude whether, in their judgment, there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern for a reasonable period of time. These responsibilities ensure that the auditor conducts a thorough and objective examination of Carbones Pizzeria's financial statements, providing a reliable basis for their opinion.