Is Coffee News management responsible for the design of internal controls?

According to Coffee News' 2025 Franchise Disclosure Document, Coffee News USA, Inc.'s management is responsible for the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements. This responsibility ensures that the financial statements are free from material misstatement, whether due to fraud or error.

In practical terms, this means that Coffee News' management must establish and maintain systems and procedures to accurately record and report financial data. These controls are designed to prevent and detect errors or fraud that could impact the integrity of the financial statements. Prospective franchisees should be aware that the accuracy and reliability of the financial information provided by Coffee News depend on the effectiveness of these internal controls.

The independent auditor's report emphasizes that while they audit the financial statements, their role is not to express an opinion on the effectiveness of Coffee News' internal controls. Instead, the auditors obtain an understanding of internal control relevant to the audit to design appropriate audit procedures. This distinction is important because it highlights that the responsibility for maintaining effective internal controls rests solely with Coffee News' management.

Franchisees relying on the financial statements should understand that while the statements are audited, the audit provides reasonable assurance, not a guarantee, that the financial statements are free from material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion or the override of internal control. Therefore, understanding management's responsibility for internal controls is crucial for assessing the reliability of the financial information.