When auditing the combined consolidated financial statements for Carls, what should the auditors identify and assess?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
is not absolute
assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS 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 judgment made by a reasonable user based on the combined consolidated financial statements.
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 combined 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 combined 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.
- Evalu
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the auditors' responsibilities include identifying and assessing the risks of material misstatement of the combined consolidated financial statements, whether due to fraud or error. This involves designing and performing audit procedures responsive to those risks, including examining evidence regarding the amounts and disclosures in the financial statements on a test basis.
Furthermore, the auditors must obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, although they do not express an opinion on the effectiveness of the company's internal control. They also evaluate the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the combined consolidated financial statements.
Finally, the auditors must conclude whether there are conditions or events that raise substantial doubt about Carls's ability to continue as a going concern for a reasonable period. The auditors are also 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.