What is the scope of the auditor's examination of evidence regarding amounts and disclosures in Checkersrallys' financial statements?
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' 2025 Franchise Disclosure Document, the auditor's examination of evidence regarding amounts and disclosures in the financial statements is conducted on a test basis. The auditors identify and assess the risks of material misstatement of the 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 financial statements, but this examination is not exhaustive.
This means that the auditor does not review every single transaction or piece of data, but rather selects a sample to examine. The selection of this sample is based on the auditor's assessment of risk, focusing on areas where misstatements are more likely to occur. The auditor also obtains an understanding of Checkersrallys' internal control relevant to the audit in order to design audit procedures that are appropriate for the circumstances.
For a prospective Checkersrallys franchisee, this implies that the financial statements have been reviewed by an independent auditor, but the audit provides reasonable, not absolute, assurance that the financial statements are free from material misstatement. The risk remains that some misstatements, especially those resulting from fraud, may not be detected. Therefore, while the audit adds credibility to the financial statements, franchisees should still conduct their own due diligence and possibly consult with their own financial advisors to fully assess the financial health of Checkersrallys.