What is the auditor's responsibility regarding evidence related to amounts and disclosures in Craters & Freighters' financial statements?
Craters_Freighters Franchise · 2025 FDDAnswer from 2025 FDD Document
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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 Craters & Freighters' 2025 Franchise Disclosure Document, the auditor has specific responsibilities when examining evidence related to the financial statements. The auditor's procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. This means the auditor does not review every single transaction but instead uses sampling techniques to gain reasonable assurance that the financial statements are free from 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, and to issue an auditor's report that includes their opinion. However, reasonable assurance is not absolute, so there is no guarantee that all misstatements will be detected. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error because fraud may involve intentional concealment.
In addition to examining evidence, the auditor must exercise professional judgment and maintain professional skepticism throughout the audit. They also need to understand Craters & Freighters' internal controls to design appropriate audit procedures, though the audit does not aim to express an opinion on the effectiveness of these controls. The auditor also evaluates the appropriateness of accounting policies and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the financial statements.
Finally, the auditor must conclude whether there are conditions or events that raise substantial doubt about Craters & Freighters' ability to continue as a going concern. The auditor is required to communicate with those charged with governance regarding the scope and timing of the audit, significant findings, and internal control-related matters identified during the audit.