When auditing Crave's financial statements, are the auditors required to express an opinion on the effectiveness of the company's internal control?
Crave Franchise · 2025 FDDAnswer from 2025 FDD Document
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 and auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore 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 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 audits.
- 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 audits in order to design audit procedures that are appropriate in the circumstance, 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 23 — RECEIPTS (FDD pages 63–253)
What This Means (2025 FDD)
According to Crave's 2025 Franchise Disclosure Document, the auditors are not required to express an opinion on the effectiveness of the company's internal control. The auditors' responsibilities include obtaining an understanding of internal control relevant to the audit to design appropriate audit procedures. However, this understanding is not for the purpose of expressing an opinion on the effectiveness of Crave's internal control.
This means that while the auditors will assess Crave's internal controls to plan their audit, they will not provide a separate, formal opinion on whether those controls are effective. This is a common practice in audits of private companies, where the cost of a full internal control audit may not be justified.
For a prospective franchisee, this implies that the financial statements have been reviewed for accuracy and adherence to accounting standards, but there is no independent verification of the strength of Crave's internal financial controls. A franchisee may want to inquire further about Crave's internal control practices to gain a better understanding of the company's financial management.