What level of assurance does an audit provide regarding the accuracy of Carbones Pizzeria's consolidated financial statements?
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.
Source: Item 22 — CONTRACTS (FDD page 30)
What This Means (2025 FDD)
According to Carbones Pizzeria's 2025 Franchise Disclosure Document, an audit aims to provide reasonable assurance that the consolidated financial statements are free from material misstatement. This means the auditor seeks to confirm that the financial statements present fairly the company's financial position, results of operations, and cash flows in accordance with generally accepted accounting principles. The audit for the year ending October 31, 2024, was conducted by DNJ & Associates, who issued an opinion stating that the financial statements present fairly, in all material respects, the financial position of M&T Pizza Incorporated and Subsidiaries.
However, the FDD clarifies that reasonable assurance is not absolute. While an audit is designed to detect material misstatements, it is not a guarantee. There's always a risk that a material misstatement, whether due to fraud or error, may not be detected. The risk of not detecting a misstatement resulting from fraud is higher because fraud may involve intentional concealment or misrepresentation.
In conducting an audit, the auditor exercises professional judgment and maintains professional skepticism. They identify and assess the risks of material misstatement, perform audit procedures, and evaluate the appropriateness of accounting policies and the reasonableness of significant accounting estimates. Ultimately, the auditor's goal is to provide an opinion on whether the financial statements are presented fairly, but prospective franchisees should understand the inherent limitations of an audit and the fact that it does not provide an absolute guarantee of accuracy.