When are misstatements considered material in the context of the Crave Franchising, LLC audit?

According to Crave's 2025 Franchise Disclosure Document, 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. This definition is used by the independent auditors in their assessment of Crave's financial statements. The auditors' report included in the FDD states their responsibility is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.

This means that the auditors are focused on detecting errors or fraudulent activities that could significantly impact a potential investor or franchisee's decision-making process when reviewing Crave's financials. The standard of 'reasonable assurance' used by the auditors indicates a high level of confidence, but it is not an absolute guarantee that all material misstatements will be detected. The auditors also acknowledge that the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve more sophisticated methods to conceal the misstatement.

For a prospective Crave franchisee, this information highlights the importance of carefully reviewing the financial statements and understanding the notes and disclosures provided. While the audit aims to provide assurance that the financials are fairly presented, it is not a substitute for one's own due diligence. If a potential franchisee identifies any inconsistencies or has concerns about the financial information, they should seek advice from their own financial advisors or legal counsel to assess the potential impact on their investment decision.