What level of assurance does an audit provide regarding the accuracy of Crave Franchising, LLC's financial statements?
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, an audit aims to provide reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. The audit report includes the auditor's opinion on whether the financial statements present fairly the company's financial position and results of operations. This assurance is conducted following Generally Accepted Auditing Standards (GAAS).
However, the FDD clarifies that reasonable assurance is not absolute. An audit is not a guarantee that all material misstatements will be detected. The risk of not detecting a material misstatement resulting from fraud is higher than that of one resulting from error because fraud may involve intentional concealment or misrepresentation. The document defines misstatements as material if they would likely influence the judgment of a reasonable user of the financial statements.
In conducting an audit under GAAS, the auditors exercise professional judgment, maintain skepticism, identify and assess risks of material misstatement, and examine evidence on a test basis. They also obtain an understanding of internal controls but do not express an opinion on their effectiveness. The auditors evaluate the appropriateness of accounting policies, the reasonableness of estimates made by management, and the overall presentation of the financial statements. Finally, the auditors consider whether there are conditions that raise substantial doubt about Crave's ability to continue as a going concern.