What is the risk of not detecting a material misstatement resulting from intentional omissions in the Crave Franchising, LLC audit?
Crave Franchise · 2025 FDDAnswer from 2025 FDD Document
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether 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 one year after March 24, 2025.
Source: Item 23 — RECEIPTS (FDD pages 63–253)
What This Means (2025 FDD)
According to Crave's 2025 Franchise Disclosure Document, management is responsible for ensuring the financial statements are free from material misstatements, whether due to fraud or error. This includes designing, implementing, and maintaining internal controls relevant to the preparation and fair presentation of financial statements. The auditor's responsibility is to conduct the audit in accordance with auditing standards generally accepted in the United States of America (GAAS) and to provide an opinion on whether the financial statements present fairly the company's financial position.
However, there is always a risk that a material misstatement resulting from intentional omissions may not be detected, even with a properly conducted audit. This risk is inherent in the audit process because auditors design audit procedures to provide reasonable, but not absolute, assurance that the financial statements are free from material misstatement. Intentional omissions, by their nature, are designed to be concealed, which can make them difficult to detect.
For a prospective Crave franchisee, this means that while the FDD includes audited financial statements, there is no guarantee that these statements are completely free of errors or fraud. The franchisee should understand the limitations of an audit and consider other factors, such as the franchisor's reputation and financial stability, when making their investment decision. It is important to consult with financial advisors to assess the risk and perform due diligence.