What is the auditor's responsibility to evaluate regarding Carls' ability to continue as a going concern?
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 auditor's responsibility is to evaluate whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern for a reasonable period of time. This evaluation is based on conditions or events considered in the aggregate.
To fulfill this responsibility, the auditor must exercise professional judgment and maintain professional skepticism throughout the audit. They 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. These procedures include examining evidence regarding the amounts and disclosures in the consolidated financial statements on a test basis.
The auditor also obtains an understanding of internal control relevant to the audit to design appropriate audit procedures, though not for the purpose of expressing an opinion on the effectiveness of the company's internal control. They 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. Ultimately, the auditor concludes whether there is substantial doubt about the company's ability to continue as a going concern for a reasonable period of time.
This evaluation is crucial for prospective franchisees because it provides an independent assessment of Carls's financial stability. If the auditor identifies substantial doubt about Carls's ability to continue as a going concern, it could indicate significant financial risks for potential franchisees. This assessment helps franchisees make informed decisions about investing in a Carls franchise.