What is the auditor's responsibility regarding Cinnaholic's internal controls?
Cinnaholic Franchise · 2025 FDDAnswer from 2025 FDD Document
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 Cinnaholic Franchising, LLC'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.
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Cinnaholic Franchising, LLC's ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 61)
What This Means (2025 FDD)
According to Cinnaholic's 2025 Franchise Disclosure Document, the auditor's responsibility regarding internal controls is to obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate for the circumstances. However, this understanding is not for the purpose of expressing an opinion on the effectiveness of Cinnaholic's internal control, and the auditor explicitly states that no such opinion is expressed. This means the auditor assesses Cinnaholic's internal controls only to the extent necessary to plan the audit, not to provide assurance on their quality.
The auditor's primary objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. While the auditor considers internal controls as part of this process, the focus remains on the accuracy and reliability of the financial statements themselves. The auditor acknowledges that there is always a risk of not detecting a material misstatement, especially one resulting from fraud, which may involve actions designed to conceal the issue, such as collusion or forgery.
In performing the audit, the auditor exercises professional judgment and maintains professional skepticism, identifies and assesses risks of material misstatement, evaluates the appropriateness of accounting policies, and concludes on Cinnaholic's ability to continue as a going concern. The auditor is also required to communicate with those charged with governance regarding the scope and timing of the audit, significant audit findings, and certain internal control-related matters identified during the audit. This communication ensures that relevant parties are informed of any significant issues discovered during the audit process.