What is the auditor's responsibility regarding internal controls when auditing Counselor Realty?
Counselor_Realty Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with GAAS, 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 the Company'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.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 32)
What This Means (2025 FDD)
According to Counselor Realty's 2025 Franchise Disclosure Document, the auditor's responsibility regarding internal controls is to obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. However, this understanding is not for the purpose of expressing an opinion on the effectiveness of Counselor Realty's internal control, and the auditor explicitly states that no such opinion is expressed.
The auditor's objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. Reasonable assurance is defined as a high level of assurance, but it is not absolute, and there is no guarantee that an audit conducted in accordance with Generally Accepted Auditing Standards (GAAS) 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, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. The auditor also communicates 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.
In summary, while the auditor assesses Counselor Realty's internal controls to design appropriate audit procedures, they do not provide an opinion on the overall effectiveness of those controls. A prospective franchisee should be aware that the audit is designed to detect material misstatements in the financial statements, but it is not a guarantee against fraud or errors that may occur due to weaknesses in internal controls.