What is the auditor required to identify and assess during the audit of City Publications' financial statements?
City_Publications Franchise · 2025 FDDAnswer from 2025 FDD Document
tect 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.
In performing an audit in accordance with GAAS, we:
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- 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.
Source: Item 23 — RECEIPT (FDD pages 39–129)
What This Means (2025 FDD)
According to City Publications' 2025 Franchise Disclosure Document, the auditor's responsibilities include identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error. This involves designing and performing audit procedures responsive to those risks, including 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 the overall presentation of the financial statements.
Furthermore, the auditor is required to conclude whether 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. These responsibilities are conducted in accordance with auditing standards generally accepted in the United States of America (GAAS).