Is an audit a guarantee that all material misstatements will be detected in Crave Cookies' financial statements?
Crave_Cookies 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 an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is 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 21 — FINANCIAL STATEMENTS (FDD page 47)
What This Means (2025 FDD)
According to Crave Cookies' 2025 Franchise Disclosure Document, an audit does not guarantee the detection of all material misstatements in the company's financial statements. While the objective of an audit is to obtain reasonable assurance that the financial statements are free from material misstatement, this assurance is not absolute.
The document clarifies that an audit conducted in accordance with Generally Accepted Auditing Standards (GAAS) provides a high level of assurance, but it is not a guarantee that a material misstatement will always be detected. The risk of not detecting a material misstatement is higher when it results from fraud, as fraud may involve intentional concealment, collusion, or misrepresentation.
For a prospective Crave Cookies franchisee, this means that while the financial statements have been audited, there remains a risk that some misstatements, especially those resulting from fraudulent activities, may not have been detected by the auditors. Therefore, it is important for franchisees to understand the limitations of an audit and to conduct their own due diligence when reviewing the financial statements.