What is the significance of the auditor obtaining reasonable assurance about whether the Crave Franchising, LLC financial statements as a whole are free from material misstatement?
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, the auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. This assurance is significant because it indicates that the auditor has performed procedures to reduce the risk that the financial statements contain errors or fraudulent information that could significantly impact a user's judgment. The auditor then issues a report that includes their opinion on the financial statements.
However, the FDD clarifies that reasonable assurance is not absolute. While it represents a high level of confidence, it does not guarantee that an audit will always detect a material misstatement. The risk of not detecting a misstatement resulting from fraud is higher than that of an error because fraud may involve intentional concealment.
For a prospective Crave franchisee, this means that while the financial statements have been audited, there is still a risk that they may contain undetected misstatements. Therefore, it is important for the franchisee to carefully review the financial statements and consider seeking professional advice to fully understand the financial condition of Crave.