What is the auditor's responsibility in evaluating the reasonableness of significant accounting estimates made by Chesters' management?
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.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits, significant audit findings and certain internal control related matters that we identified during the audits.
Source: Item 21 — **FINANCIAL STATEMENTS (FDD page 48)
What This Means (2025 FDD)
According to Chesters's 2025 Franchise Disclosure Document, the auditor's responsibility includes evaluating the reasonableness of significant accounting estimates made by the management of Chesters International, LLC. This evaluation is part of a broader audit performed in accordance with generally accepted auditing standards. The auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion.
To achieve this, the auditor exercises professional judgment and maintains professional skepticism throughout the audit. They identify and assess the risks of material misstatement in 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 on a test basis. The auditor also obtains an understanding of internal control relevant to the audit to design appropriate audit procedures, although they do not express an opinion on the effectiveness of Chesters's internal control.
In addition to evaluating accounting estimates, the auditor also assesses the appropriateness of the accounting policies used and evaluates the overall presentation of the financial statements. Furthermore, the auditor concludes whether there are conditions or events that raise substantial doubt about Chesters's ability to continue as a going concern for a reasonable period of time. The auditor is also required to communicate with those charged with governance regarding the planned scope and timing of the audits, significant audit findings, and certain internal control-related matters identified during the audits.
For a prospective Chesters franchisee, this means that the financial statements presented in the FDD have been scrutinized by an independent auditor who has specifically assessed the reasonableness of the accounting estimates made by Chesters's management. This provides a level of assurance that the financial information is reliable and fairly presented, which can be crucial for making informed investment decisions. However, it is important to note that reasonable assurance is not absolute, and there is always a risk that material misstatements may not be detected.