When conducting an audit for Deck Medic, what level of judgment and skepticism is required?
Deck_Medic Franchise · 2024 FDDAnswer from 2024 FDD Document
if there is a substantial likelihood that, individually or in aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
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\nerror, 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 to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Deck Medic, Inc.'s internal control. 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.
Source: Item 23 — RECEIPTS (FDD pages 43–228)
What This Means (2024 FDD)
According to Deck Medic's 2024 Franchise Disclosure Document, auditors are required to exercise professional judgment and maintain professional skepticism throughout the audit. This means the auditor must have a questioning mind and critically assess the audit evidence presented. This approach is essential to identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error. The auditor must design and perform audit procedures that are responsive to those risks, including examining evidence regarding the amounts and disclosures in the financial statements on a test basis.
Furthermore, the auditor needs to obtain an understanding of internal control relevant to the audit. This understanding is used to design audit procedures appropriate for the circumstances, but it does not extend to expressing an opinion on the effectiveness of Deck Medic's internal control. The auditor also evaluates the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements.
Finally, the auditor must conclude whether there are conditions or events that raise substantial doubt about Deck Medic's ability to continue as a going concern for a reasonable period. This requires careful consideration of various factors and their potential impact on the company's financial stability. The auditor's role is to provide reasonable assurance that the financial statements are free from material misstatement, but it is not an absolute guarantee, especially in cases involving fraud, which may include collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.