During the audit of Carls' combined consolidated financial statements, is the purpose 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.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the purpose of the audit of the combined consolidated financial statements is not to express an opinion on the effectiveness of the company's internal control. The audit aims to obtain an understanding of internal control relevant to the audit, but this is to design audit procedures that are appropriate for the circumstances.
The auditors' responsibilities include exercising professional judgment, identifying risks of material misstatement, examining evidence, evaluating accounting policies, and concluding whether there are conditions that raise doubt about the company's ability to continue as a going concern. The auditors are required to communicate with those charged with governance regarding the audit's scope, timing, significant findings, and internal control matters identified during the audit.
This means that while the auditors will assess Carls's internal controls to plan their audit procedures, they will not provide a formal opinion on how effective those controls are. A prospective franchisee should be aware that the financial statements are audited for accuracy and fair presentation, but the audit does not guarantee the effectiveness of the company's internal controls.