During an audit of Cinnabon's financial statements, is the auditor required to express an opinion on the effectiveness of the company's internal control?
Cinnabon 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 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 US 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.
In performing an audit in accordance with US GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the consolidated 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 consolidated financial statements.
- 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.
Source: Item 23 — Receipts (FDD pages 114–399)
What This Means (2025 FDD)
According to Cinnabon's 2025 Franchise Disclosure Document, the auditor is not required to express an opinion on the effectiveness of the company's internal control. The audit's objective is to obtain reasonable assurance that the consolidated financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. The document states that reasonable assurance is a high level of assurance, but it is not absolute, and therefore, it is not a guarantee that an audit will always detect a material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than that of error because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
The auditor's responsibilities include exercising professional judgment, maintaining professional skepticism, identifying and assessing risks of material misstatement, and obtaining an understanding of internal control relevant to the audit. However, this understanding of internal control is solely for designing appropriate audit procedures and not for expressing an opinion on the effectiveness of the company's internal control.
For a prospective Cinnabon franchisee, this means that while the financial statements are audited for accuracy and fairness, the audit does not specifically assess the strength or effectiveness of Cinnabon's internal controls. Therefore, the franchisee should conduct their own due diligence to understand the internal controls and risk management practices of the company.