What is the criteria for misstatements to be considered material in the consolidated financial statements of Christian Brothers Automotive?
Christian_Brothers_Automotive Franchise · 2025 FDDAnswer from 2025 FDD Document
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' 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 consolidated financial statements.
Source: Item 23 — RECEIPTS (FDD pages 76–372)
What This Means (2025 FDD)
According to Christian Brothers Automotive's 2025 Franchise Disclosure Document, misstatements in the consolidated financial statements are considered material if they could influence the judgment of a reasonable user of those statements. This means that if a misstatement, either individually or when combined with other misstatements, is significant enough to potentially change or impact the decisions of someone relying on the financial statements, it is deemed material.
The FDD emphasizes that audits aim to provide reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. However, it also acknowledges that audits are not absolute guarantees against detecting all misstatements. The risk of not detecting a material misstatement is higher when it results from fraud, as fraud may involve intentional concealment or manipulation.
For a prospective Christian Brothers Automotive franchisee, this information highlights the importance of carefully reviewing the financial statements and understanding the potential impact of any misstatements. While audits are conducted to ensure accuracy, the ultimate responsibility for the fair presentation of the financial statements lies with the management of Christian Brothers Automotive. Franchisees should be aware of the criteria used to determine materiality and consider seeking professional advice if they have concerns about the financial statements.