When auditing Coffee News financial statements, is it required to exercise professional judgment?
Coffee_News Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with generally accepted auditing standards, we:
- 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.
Source: Item 23 — Receipts (FDD pages 36–118)
What This Means (2025 FDD)
According to Coffee News's 2025 Franchise Disclosure Document, auditors are required to exercise professional judgment when auditing the financial statements. The auditor's responsibilities include obtaining reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and issuing an auditor's report that includes their opinion. While reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit will always detect a material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error.
In conducting an audit, the auditor must exercise professional judgment and maintain professional skepticism throughout the process. 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 audit procedures that are appropriate in the circumstances. However, the purpose is not to express an opinion on the effectiveness of Coffee News USA, Inc.'s internal control, and no such opinion is expressed. Additionally, 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.
Finally, the auditor concludes whether there are conditions or events that raise substantial doubt about Coffee News USA, Inc.'s ability to continue as a going concern for a reasonable period of time. The auditor is also required to communicate with those charged with governance regarding the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters identified during the audit.