Under what condition are misstatements considered material in the financial statements of Counselor Realty?
Counselor_Realty Franchise · 2025 FDDAnswer from 2025 FDD Document
Misstatements 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 32)
What This Means (2025 FDD)
According to Counselor Realty's 2025 Franchise Disclosure Document, misstatements in the financial statements are considered material if they could influence the judgment of a reasonable user of those statements. This means that if an error or omission is significant enough that it would likely change how someone interprets the financial information, it is deemed a material misstatement. The auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error.
Reasonable assurance, while a high level of confidence, isn't an absolute guarantee that all material misstatements will be detected. The risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error because fraud may involve intentional concealment.
For a prospective Counselor Realty franchisee, this indicates that the financial statements presented in the FDD are prepared with the intention of being accurate and reliable. However, it's important to understand that audits are designed to provide reasonable, not absolute, assurance. Franchisees should carefully review the financial statements and consider seeking professional advice to fully understand the financial health of Counselor Realty.