What is the auditor's responsibility in evaluating the appropriateness of accounting policies used by Chesters?
Chesters Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with generally accepted auditing standards, we:
- Exercise professional judgment and maintain professional skepticism throughout the audits.
- 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. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
- Obtain an understanding of internal control relevant to the audits 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 Chester's International, LLC'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 financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Chester's International, LLC's ability to continue as a going concern for a reasonable period of time.
Source: Item 21 — **FINANCIAL STATEMENTS (FDD page 48)
What This Means (2025 FDD)
According to Chesters's 2025 Franchise Disclosure Document, the auditor has a responsibility to evaluate the appropriateness of the accounting policies used by the company. This evaluation is part of a broader audit performed in accordance with generally accepted auditing standards. The auditor also assesses the reasonableness of significant accounting estimates made by management and evaluates the overall presentation of the financial statements.
In practical terms, this means the auditor must determine if the accounting methods Chesters uses are suitable for its business and industry, and comply with accounting principles generally accepted in the United States of America. For example, the auditor would review how Chesters recognizes revenue from franchise fees or how it values inventory to ensure these methods are appropriate.
This evaluation provides assurance to potential franchisees that Chesters's financial statements are prepared using sound and consistent accounting practices. It helps ensure that the financial information presented is reliable and can be used to make informed decisions about investing in a Chesters franchise. However, it is important to remember that an audit provides reasonable, but not absolute, assurance, and there is always a risk of material misstatement.