Under what condition are misstatements, including omissions, considered material in Coffee News' financial statements?

According to Coffee News' 2025 Franchise Disclosure Document, 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. This definition is used by the independent auditor when assessing the fairness and accuracy of Coffee News' financial statements.

For a prospective Coffee News franchisee, this means that the financial statements provided in the FDD are audited with the goal of ensuring they are free from errors or omissions that could significantly mislead someone relying on those statements to make a business decision. The auditor's responsibility is to provide reasonable assurance that the financial statements present a fair view of Coffee News' financial position and performance.

It is important to note that while the auditor aims to detect material misstatements, they cannot guarantee that all misstatements will be found. The risk of not detecting a misstatement resulting from fraud is higher than one resulting from error, as fraud may involve intentional concealment. Therefore, while the audit provides a level of confidence, potential franchisees should still conduct their own due diligence and seek professional advice when reviewing the financial statements.