What level of assurance does an audit provide regarding the accuracy of Deck Medic's financial statements?
Deck_Medic Franchise · 2024 FDDAnswer from 2024 FDD Document
c.'s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Auditor's Responsibilities for the Audit of the Financial Statements
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 generally accepted auditing standards 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.
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 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 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, an audit aims to provide reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. The auditor issues a report that includes their opinion on the financial statements. This "reasonable assurance" signifies a high level of confidence, but it is not absolute, meaning there's no guarantee that the audit will detect every single material misstatement.
The FDD emphasizes that the risk of not detecting a material misstatement resulting from fraud is higher than that of an error. This is because fraud may involve sophisticated methods like collusion, forgery, intentional omissions, misrepresentations, or overriding internal controls, which are designed to prevent errors but may be circumvented in cases of fraud. The document defines misstatements as material if they are likely to influence the judgment of a reasonable user of the financial statements, either individually or in the aggregate.
During the audit, the auditor exercises professional judgment and maintains skepticism. They identify and assess the risks of material misstatement, whether due to fraud or error, and design audit procedures to respond to those risks. These procedures include examining evidence related to the amounts and disclosures in the financial statements on a test basis. The auditor also obtains an understanding of Deck Medic's internal control system to design appropriate audit procedures, though they do not express an opinion on the effectiveness of the internal control itself.
Furthermore, the auditor evaluates the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management. Finally, the auditor concludes 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 of time. This comprehensive approach is intended to provide stakeholders with a reliable assessment of the company's financial position and performance, while acknowledging the inherent limitations of the auditing process.