During the audit of Carls' combined consolidated financial statements, are the audit procedures designed to express an opinion on the effectiveness of the company's internal control?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
In performing an audit in accordance with GAAS, 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 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the audit procedures for the combined consolidated financial statements are not designed to express an opinion on the effectiveness of the company's internal control. While the auditors obtain an understanding of internal control relevant to the audit to design appropriate procedures, the purpose is not to provide an opinion on the effectiveness of Carls's internal control. The audit is conducted in accordance with auditing standards generally accepted in the United States of America (GAAS).
The auditors' responsibilities include exercising professional judgment, maintaining professional skepticism, identifying and assessing risks of material misstatement, and evaluating the appropriateness of accounting policies. They also evaluate the reasonableness of significant accounting estimates made by management and the overall presentation of the consolidated financial statements. The auditors conclude whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern.
Carls's management is responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the combined consolidated financial statements. Management is also required to evaluate whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern for one year after the date that the combined consolidated financial statements are available to be issued.
Prospective franchisees should understand that the audit provides reasonable assurance that the financial statements are free from material misstatement but does not guarantee the detection of all misstatements. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error. The auditors are required to communicate with those charged with governance regarding the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters identified during the audit.