What is the auditor's objective in auditing the financial statements of Craters & Freighters?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
cial Statements
Our objectives are 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 our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. 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. 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 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\neffectiveness of Craters & Freighters Franchise Company's internal control. Accordingly, no such opinion is\nexpressed.
- 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 Craters & Freighters Franchise Company's ability to continue as a going concern for a reasonable period of time.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 49)
What This Means (2025 FDD)
According to the 2025 FDD, the auditor's objective is to obtain reasonable assurance that the financial statements of Craters & Freighters are free from material misstatements, whether due to fraud or error. The auditor also aims to issue a report that includes their opinion on the financial statements. This assurance is a high level of confidence, but it is not absolute, meaning there is no guarantee that all misstatements will be detected.
The FDD clarifies that the risk of not detecting a material misstatement resulting from fraud is higher than that of error. This is because fraud may involve intentional actions like collusion, forgery, or misrepresentation. Misstatements, including omissions, are considered material if they could influence the judgment of a reasonable user of the financial statements.
In conducting the audit, the auditor exercises professional judgment and maintains skepticism. They identify and assess the risks of material misstatement, design audit procedures responsive to those risks, and examine evidence supporting the amounts and disclosures in the financial statements. The auditor also obtains an understanding of Craters & Freighters's internal control system, but not for the purpose of expressing an opinion on its effectiveness.
The auditor evaluates the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management. Finally, the auditor concludes whether there are conditions or events that raise substantial doubt about Craters & Freighters's ability to continue as a going concern. These responsibilities are performed in accordance with auditing standards generally accepted in the United States of America (GAAS).