What level of assurance does an audit provide regarding the accuracy of City Publications' financial statements?
City_Publications Franchise · 2025 FDDAnswer from 2025 FDD Document
ncial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether 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 one year after the date that the financial statements are issued.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the 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 GAAS will always detect a material misstatement when it exists.
Source: Item 23 — RECEIPT (FDD pages 39–129)
What This Means (2025 FDD)
According to City Publications' 2025 Franchise Disclosure Document, an audit aims to provide reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. The auditor's report includes an opinion on whether the financial statements present fairly the financial position of City Publications. This reasonable assurance is considered a high level of assurance, but it is not absolute, meaning there is no guarantee that an audit will always detect every material misstatement. The standards for audits are based on auditing standards generally accepted in the United States of America (GAAS).
The auditor's responsibilities include exercising professional judgment, maintaining professional skepticism, identifying and assessing risks of material misstatement, and examining evidence regarding the amounts and disclosures in the financial statements on a test basis. They also obtain an understanding of internal control relevant to the audit to design appropriate procedures, but they do not express an opinion on the effectiveness of City Publications' internal control. The auditor evaluates the appropriateness of accounting policies and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the financial statements.
The FDD emphasizes that the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error. This is because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if they would likely influence the judgment made by a reasonable user of the financial statements. Therefore, while an audit provides a high level of confidence in the accuracy of the financial statements, prospective City Publications franchisees should understand its limitations and the inherent risks involved.