During the audit of Creative World School, what should be evaluated regarding accounting policies and estimates?
Creative_World_School Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with generally accepted auditing standards, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Creative World Sc Accordingly, no such opinion is expressed.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Creative Wo continue as a going concern for a reasonable period of time.
Source: Item 23 — RECEIPTS (FDD pages 80–247)
What This Means (2025 FDD)
According to Creative World School's 2025 Franchise Disclosure Document, the audit should evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the financial statements. This evaluation is part of ensuring that the financial statements are free from material misstatement, whether due to fraud or error. The auditors must exercise professional judgment and maintain professional skepticism throughout the audit.
Specifically, the audit involves examining evidence regarding the amounts and disclosures in the financial statements on a test basis. Auditors also obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, though they do not express an opinion on the effectiveness of Creative World School's internal controls. The auditors must also conclude whether there are conditions or events that raise substantial doubt about Creative World School's ability to continue as a going concern.
Furthermore, Creative World School has the right to inspect and audit a franchisee's construction, business, bookkeeping, accounting records, sales and income tax records, and other records with 3 days prior notice. If the audit is required because the franchisee failed to furnish accurate or timely reports, or if gross revenues are understated by 1% or more, the franchisee must reimburse Creative World School for the cost of the audit, including attorney and accountant fees, travel expenses, and employee compensation. The franchisee must also pay any shortfall in amounts owed, including late fees and interest, within 10 days of notice.