During the audit of Carvel's consolidated financial statements, what should auditors identify and assess risks of?
Carvel Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with US 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 23 — Receipts (FDD pages 100–353)
What This Means (2025 FDD)
According to Carvel's 2025 Franchise Disclosure Document, the auditors' responsibilities include identifying and assessing the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. This assessment is a critical part of the audit process, ensuring that the financial statements are reasonably free from significant inaccuracies or omissions. The auditors then design and perform audit procedures that are responsive to these identified risks, which include examining evidence regarding the amounts and disclosures in the consolidated financial statements on a test basis.
This process involves the auditors exercising professional judgment and maintaining professional skepticism throughout the audit. They must obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, though they do not express an opinion on the effectiveness of the company's internal control. The auditors also evaluate the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the consolidated financial statements.
Furthermore, the auditors must conclude whether there are conditions or events that raise substantial doubt about Carvel's ability to continue as a going concern for a reasonable period. This comprehensive approach ensures that the audit provides a reasonable level of assurance that the financial statements are fairly presented in accordance with accounting principles generally accepted in the United States of America.
For a prospective Carvel franchisee, this rigorous audit process provides confidence in the financial health and stability of the company. Understanding the auditor's responsibilities can help franchisees appreciate the depth of scrutiny applied to Carvel's financial statements, which can inform their investment decision.