What does the auditor mean by exercising professional judgment during the Checkersrallys audit?
Checkersrallys 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 21 — FINANCIAL STATEMENTS (FDD page 91)
What This Means (2025 FDD)
According to Checkersrallys's 2025 Franchise Disclosure Document, the auditor's responsibilities include exercising professional judgment and maintaining professional skepticism throughout the audit. This means the auditor must use their expertise and experience to make informed decisions about the audit process. This includes identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, and designing and performing audit procedures responsive to those risks. The auditor's judgment influences the scope, timing, and nature of the audit procedures.
Exercising professional judgment also involves evaluating the appropriateness of accounting policies used by Checkersrallys and the reasonableness of significant accounting estimates made by its management. The auditor must assess the overall presentation of the financial statements to ensure they are fairly presented. This requires the auditor to critically analyze the financial information provided by the company and to consider whether the accounting policies and estimates are consistent with generally accepted accounting principles and are reasonable in the circumstances.
Furthermore, the auditor must conclude whether there are conditions or events that raise substantial doubt about Checkersrallys's ability to continue as a going concern for a reasonable period. This assessment requires the auditor to consider various factors, including the company's financial performance, its ability to meet its obligations, and any significant risks or uncertainties that it faces. The auditor's professional judgment is essential in determining whether these factors, when considered in the aggregate, indicate a potential going concern issue.
For a prospective Checkersrallys franchisee, this means that the financial statements have been subjected to a rigorous and independent audit process. The auditor's professional judgment provides a level of assurance that the financial statements are fairly presented and are free from material misstatement. This can give franchisees confidence in the financial health and stability of the company. However, it is important to note that even with an audit, there is always a risk of undetected misstatements, particularly those resulting from fraud.