During an audit, what level of judgment is expected to be exercised by the auditor for City Publications?
City_Publications Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with GAAS, we:
ese CPALLC
- 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.
- 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 CITY PUBLICATIONS FRANCHISE GROUP, INC.'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 CITY PUBLICATIONS FRANCHISE GROUP, INC.'s ability to continue as a going concern for a reasonable period of time.
Source: Item 23 — RECEIPT (FDD pages 39–129)
What This Means (2025 FDD)
According to City Publications' 2025 Franchise Disclosure Document, the auditor is expected to exercise professional judgment and maintain professional skepticism throughout the audit. This involves identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, and designing and performing audit procedures responsive to those risks. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis.
The auditor must also obtain an understanding of internal control relevant to the audit in order to design appropriate audit procedures, though not for the purpose of expressing an opinion on the effectiveness of City Publications' internal control. The auditor evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
Ultimately, the auditor must conclude whether, in their judgment, there are conditions or events that raise substantial doubt about City Publications' ability to continue as a going concern for a reasonable period of time. This involves a high level of assurance, but it is not absolute, meaning there is no guarantee that a material misstatement will always be detected.