During an audit, is professional skepticism required when assessing Deka Lash's financial statements?
Deka_Lash Franchise · 2024 FDDAnswer from 2024 FDD Document
In performing an audit in accordance with generally accepted auditing standards, we:
- Exercise professional judgement 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 funancial 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 DL Franchising, LLC'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.
- Conclude whether, in our judgement, there are conditions or events, considered in the aggregate, that raise substantial doubt about DL Franchising, LLC's ability to continue as a going concern for a reasonable period of time.
Source: Item 23 — RECEIPT (FDD pages 63–234)
What This Means (2024 FDD)
Yes, according to Deka Lash's 2024 Franchise Disclosure Document, auditors are required to exercise professional skepticism throughout the audit of the company's financial statements. This means the auditor must maintain a questioning mind and critically assess the audit evidence. This approach is essential to identify and assess the risks of material misstatement in the financial statements, whether due to fraud or error.
The auditor's responsibilities include identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, and designing and performing audit procedures responsive to those risks. These procedures involve examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor must also obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, though the audit does not aim to express an opinion on the effectiveness of Deka Lash's internal control.
Furthermore, the auditor must 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. The auditor also has to conclude whether there are conditions or events that raise substantial doubt about Deka Lash's ability to continue as a going concern for a reasonable period of time. This comprehensive approach ensures that the financial statements are presented fairly and in accordance with accounting principles generally accepted in the United States of America.