What level of assurance does the auditor provide regarding Deka Lash's financial statements?
Deka_Lash Franchise · 2024 FDDAnswer from 2024 FDD Document
and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether 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 within one year after the date that the financial statements are available to be issued.
Auditor's Responsibility
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, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgement made by a reasonable user based on the financial statements.
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.
Source: Item 23 — RECEIPT (FDD pages 63–234)
What This Means (2024 FDD)
According to Deka Lash's 2024 Franchise Disclosure Document, the auditor provides 'reasonable assurance' regarding the financial statements. This means the auditor aims to confirm that the financial statements are free from material misstatement, whether due to fraud or error, and will issue a report including their opinion.
However, the FDD clarifies that 'reasonable assurance' is not absolute. While it represents a high level of confidence, it doesn't guarantee that an audit will always detect every material misstatement. There's a higher risk of not detecting misstatements resulting from fraud compared to errors, as fraud can involve intentional concealment.
In conducting the audit, the auditor exercises professional judgment, assesses risks of misstatement, examines evidence on a test basis, and evaluates the appropriateness of accounting policies and estimates. They also consider whether Deka Lash can continue as a 'going concern.' Ultimately, the auditor's report expresses an opinion on the fairness of Deka Lash's financial position, operating results, and cash flows, based on generally accepted accounting principles.