When auditing Coffee News financial statements, is it required to maintain professional skepticism?
Coffee_News Franchise · 2025 FDDAnswer from 2025 FDD Document
ol. Misstatements, including omissions, 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 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.
- 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 Coffee News USA, 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.
Source: Item 23 — Receipts (FDD pages 36–118)
What This Means (2025 FDD)
According to the 2025 Coffee News Franchise Disclosure Document, auditors are required to maintain professional skepticism throughout the audit of the financial statements. This means the auditors must exercise professional judgment and maintain a questioning mind when identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error.
The auditors' responsibilities include designing and performing audit procedures responsive to the identified risks, which involves examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditors must also obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, though they do not express an opinion on the effectiveness of Coffee News's internal control.
Furthermore, the auditors evaluate the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements. They also conclude whether there are conditions or events that raise substantial doubt about Coffee News's ability to continue as a going concern. These responsibilities are in accordance with generally accepted auditing standards.
This requirement ensures that the audit is conducted with objectivity and a critical assessment of the information provided, increasing the reliability of the financial statements. For a prospective Coffee News franchisee, this suggests that the financial information presented by Coffee News has been rigorously examined, providing a higher level of confidence in its accuracy.