Does the audit of Creative World School express an opinion on the effectiveness of internal controls?
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.
Source: Item 23 — RECEIPTS (FDD pages 80–247)
What This Means (2025 FDD)
According to the 2025 Creative World School FDD, the audit performed does not express an opinion on the effectiveness of internal controls. While the auditors obtain an understanding of internal control relevant to the audit to design appropriate procedures, this is not for the purpose of expressing an opinion on the effectiveness of Creative World School's internal control.
This means that the audit focuses on the financial statements themselves, ensuring they are free from material misstatement, rather than evaluating the systems and processes Creative World School has in place to manage its finances. The auditors' responsibilities include identifying and assessing risks of material misstatement, examining evidence regarding amounts and disclosures, and evaluating accounting policies and estimates. However, these procedures are designed to inform the audit of the financial statements, not to provide assurance on the internal control systems.
For a prospective franchisee, this highlights the importance of conducting their own due diligence regarding Creative World School's internal controls and financial management practices. While the financial statements are audited, the absence of an opinion on internal controls means that a franchisee should independently assess the franchisor's operational and financial infrastructure. This could involve asking specific questions about financial reporting procedures, fraud prevention measures, and the overall control environment during the due diligence process.
This approach is fairly standard in franchise auditing. Many franchisors focus the audit on the accuracy and reliability of the financial statements, as that is the primary requirement for regulatory compliance and providing financial transparency to potential franchisees. A separate, more in-depth assessment of internal controls might be conducted internally or by a different firm, but it is not typically included as part of the standard financial audit presented in the FDD.