What should be evaluated regarding accounting policies during the Clean Your Dirty Face audit?
Clean_Your_Dirty_Face Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with generally accepted auditing standards, we:
- x Exercise professional judgment and maintain professional skepticism throughout the audit.
- x 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.
- x 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 Mud Franchising LLC's internal control. Accordingly, no such opinion is expressed.
- x 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 54)
What This Means (2025 FDD)
According to Clean Your Dirty Face's 2025 Franchise Disclosure Document, the audit should evaluate the appropriateness of the accounting policies used by the company. The audit also assesses the reasonableness of significant accounting estimates made by management and the overall presentation of the financial statements.
Specifically, the financial statements are prepared using the accrual basis of accounting, where revenue is recognized when earned, and expenses are recognized when goods or services are received, irrespective of cash receipt or payment. Clean Your Dirty Face uses the cash basis for income tax reporting. Management is responsible for the fair presentation of these financial statements in accordance with generally accepted accounting principles in the United States.
Additionally, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent items, and reported revenue and expenses. These estimates are crucial, and actual results could differ. The auditor must exercise professional judgment and maintain skepticism, identify risks of material misstatement, and obtain an understanding of internal controls relevant to the audit.