When preparing Checkers' financial statements, what evaluation is management required to perform regarding the company's ability to continue as a going concern?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether 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 one year after the date that the financial statements are available to be issued.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, when preparing consolidated financial statements, Checkers' management is required to evaluate whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern for one year after the date the financial statements are available to be issued. This evaluation is a standard accounting practice, ensuring that the financial statements provide a realistic view of the company's financial health.
This "going concern" assessment is crucial for prospective franchisees because it reflects the stability and long-term viability of Checkers. If management identifies substantial doubt, it could indicate potential financial difficulties that might affect the franchisor's ability to support its franchisees. For example, a struggling franchisor might cut back on marketing support, delay new product development, or even face bankruptcy, all of which could negatively impact franchisees.
It is important to note that the auditor also has responsibilities related to the going concern assessment. According to the FDD, the auditor must conclude whether there are conditions or events that raise substantial doubt about Checkers' ability to continue as a going concern for a reasonable period of time. This provides an additional layer of scrutiny, as both management and the independent auditor are evaluating the company's financial health and viability.