What are the stated objectives of the auditor regarding Chop5 Salad Kitchen's financial statements?
Chop5_Salad_Kitchen Franchise · 2024 FDDAnswer from 2024 FDD Document
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from 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 23 — RECEIPT (FDD pages 50–178)
What This Means (2024 FDD)
According to the 2024 FDD, the auditor's objectives for Chop5 Salad Kitchen's financial statements are to gain reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. The auditor also aims to issue a report that includes their opinion on the financial statements. The FDD clarifies that while reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit will always detect a material misstatement.
The document points out that the risk of not detecting a material misstatement resulting from fraud is higher than that of one resulting from error. This is because fraud may involve activities like collusion, forgery, intentional omissions, misrepresentations, or the overriding of internal controls. The FDD defines misstatements as material if they could likely influence the judgment of a reasonable user of the financial statements, either individually or in the aggregate.
In conducting the audit, the auditor will exercise professional judgment and maintain professional skepticism. They will identify and assess the risks of material misstatement, design and perform audit procedures responsive to those risks, and examine evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor will also obtain an understanding of internal control relevant to the audit but will not express an opinion on the effectiveness of Chop5 Salad Kitchen's internal control. Finally, the auditor will evaluate the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements, and conclude on Chop5 Salad Kitchen's ability to continue as a going concern.