What is the definition of reasonable assurance in the context of the Crave Franchising, LLC audit?
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.
Source: Item 23 — RECEIPTS (FDD pages 63–253)
What This Means (2025 FDD)
According to Crave's 2025 Franchise Disclosure Document, reasonable assurance, in the context of the audit of Crave Franchising, LLC's financial statements, is defined as a high level of assurance, but not absolute assurance. This means that while the auditors aim to provide a strong level of confidence that the financial statements are free from material misstatement, they cannot guarantee that an audit conducted according to Generally Accepted Auditing Standards (GAAS) will always detect every misstatement.
The FDD clarifies that the risk of not detecting a material misstatement resulting from fraud is higher than that of one resulting from error. This is because fraud may involve intentional actions like collusion, forgery, intentional omissions, misrepresentations, or overriding internal controls, which are designed to prevent errors but may not be effective against deliberate deception.
Furthermore, the document specifies that misstatements are considered material if they could individually or collectively influence the judgment of a reasonable user of the financial statements. This definition sets a threshold for what the auditors focus on during their examination, emphasizing the importance of issues that could significantly impact decision-making based on the financial information provided by Crave.