Are auditors required to express an opinion on the effectiveness of Carls' 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 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 79–80)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, the auditors are not required to express an opinion on the effectiveness of the company's internal control. The document states that the auditors' responsibilities include obtaining an understanding of internal control relevant to the audit. However, this understanding is solely for the purpose of designing audit procedures appropriate to the circumstances.
The auditors' report explicitly states that no opinion is expressed on the effectiveness of Carls' internal control. This means that while the auditors assess internal controls to plan their audit, they do not provide a separate evaluation or assurance on how well those controls are working.
For a prospective Carls franchisee, this implies that the financial statements are audited for accuracy and compliance with accounting standards, but there is no independent assessment of the strength or effectiveness of the company's internal controls over financial reporting. Franchisees may want to consider this when evaluating the financial stability and risk associated with investing in a Carls franchise.