What is the auditor required to exercise throughout the audit of Chocolate Fish Coffee?
Chocolate_Fish_Coffee Franchise · 2024 FDDAnswer from 2024 FDD Document
Auditor's Responsibilities for the Audit of the Financial Statements
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.
In performing an audit in accordance with GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- 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.
924 W. 75th Street Suite 120 - 189 Naperville, IL 60565 +1 (815) 348-2421 omar@napercpa.com
- 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 financial statements.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 41)
What This Means (2024 FDD)
According to Chocolate Fish Coffee's 2024 Franchise Disclosure Document, the auditor is required to exercise professional judgment and maintain professional skepticism throughout the audit. This means the auditor must use their expertise and experience to make informed decisions and critically assess the information provided by Chocolate Fish Coffee.
The auditor's responsibilities include identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error. To address these risks, the auditor designs and performs audit procedures, such as examining evidence related to the amounts and disclosures in the financial statements on a test basis. The auditor also needs to understand Chocolate Fish Coffee's internal control system to design appropriate audit procedures, although they do not express an opinion on the effectiveness of the company's internal control.
Furthermore, the auditor evaluates the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by Chocolate Fish Coffee's management. They also assess the overall presentation of the financial statements. Finally, the auditor must conclude whether there are conditions or events that raise substantial doubt about Chocolate Fish Coffee's ability to continue as a going concern.
These requirements ensure that the auditor conducts a thorough and objective examination of Chocolate Fish Coffee's financial statements, providing reasonable assurance that the statements are free of material misstatement. This is important for prospective franchisees as it gives them confidence in the financial information presented by Chocolate Fish Coffee.