What is the auditor's responsibility regarding accounting estimates made by Deka Lash's management?
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)
According to Deka Lash's 2024 Franchise Disclosure Document, the auditor has specific responsibilities related to the company's financial statements. The auditor's objectives are to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. While reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit will always detect a material misstatement.
In conducting the audit, the auditor must exercise professional judgment and maintain professional skepticism. They identify and assess the risks of material misstatement in the financial statements, whether due to fraud or error, and design audit procedures to respond to those risks. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor also obtains an understanding of internal control relevant to the audit to design appropriate procedures, though they do not express an opinion on the effectiveness of Deka Lash's internal control.
Specifically related to management's accounting estimates, the auditor evaluates the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management. Additionally, the auditor must 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 evaluation is crucial for prospective franchisees as it provides an independent assessment of the financial health and stability of Deka Lash.