What is the auditor's responsibility regarding fraud detection in Checkers' financial statements?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US 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 consolidated financial statements.
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.
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 page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, the auditor's responsibility is to obtain reasonable assurance that the financial statements are free of material misstatement, whether due to fraud or error, and to issue an auditor's report including their opinion. While reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit conducted according to generally accepted auditing standards (GAAS) will always detect a material misstatement. The auditor's objectives include exercising professional judgment and maintaining professional skepticism throughout the audit. They will also 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.
The risk of not detecting a material misstatement resulting from fraud is higher than that of one resulting from error because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. The auditor will obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, but not to express an opinion on the effectiveness of Checkers' internal control.
The auditor will evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the consolidated financial statements. They will also conclude whether conditions or events raise substantial doubt about Checkers' ability to continue as a going concern for a reasonable period.
Finally, the auditor is 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. This communication ensures transparency and accountability in the audit process.