What is the auditor's objective in auditing the financial statements of Chocolate Bash?
Chocolate_Bash Franchise · 2024 FDDAnswer from 2024 FDD Document
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 38)
What This Means (2024 FDD)
According to Chocolate Bash's 2024 Franchise Disclosure Document, the auditor's objective is to obtain reasonable assurance that the financial statements are free of material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. The auditor's report for Chocolate Bash includes the Balance Sheet as of December 31, 2023, December 31, 2022, & December 31, 2021, the related Profit & Loss Statements, the related Statements of Cashflows, the related Statements of Shareholders' Equity, and the related notes for the twelve-month periods then ended.
Reasonable assurance, while a high level of assurance, is not absolute. Therefore, an audit is not a guarantee that all material misstatements will be detected. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error because fraud may involve intentional concealment or misrepresentation.
In conducting the audit, the auditor exercises professional judgment, maintains professional skepticism, identifies and assesses risks of material misstatement, obtains an understanding of internal control, evaluates the appropriateness of accounting policies, and concludes on the company's ability to continue as a going concern. They also communicate with those in charge of governance regarding the audit's scope, timing, findings, and internal control matters.
For a prospective Chocolate Bash franchisee, understanding the auditor's responsibilities provides insight into the reliability of the financial statements. It's important to recognize that while the audit aims to provide reasonable assurance, it does not guarantee the complete absence of errors or fraud. Reviewing the auditor's report and understanding the scope of the audit can help a franchisee assess the financial health and stability of Chocolate Bash.