What aspect of Desi District's financial statements must be evaluated besides accounting policies and estimates?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
inancial statements that are free of 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 the Company's ability to continue as a going concern for 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 of 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 GAAS 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 GAAS, 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\nexamining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 52)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, when evaluating the financial statements, one must consider whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern for one year after the financial statements are issued. This assessment is the responsibility of Desi District's management during the preparation of the financial statements.
Furthermore, the auditor's responsibilities include concluding whether such conditions or events exist. The auditor's report aims to provide reasonable assurance that the financial statements are free of material misstatement, whether due to fraud or error. However, it's important to note that reasonable assurance is not absolute, and there's a risk that material misstatements, especially those resulting from fraud, may not always be detected.
Prospective franchisees should understand that while the auditor evaluates the appropriateness of accounting policies and the reasonableness of management's estimates, the overall presentation of the financial statements and the company's ability to continue as a going concern are also critical aspects to consider. This is particularly important for a relatively new franchisor like Desi District, which, as stated in the FDD, has not been in business for three years or more and therefore cannot include all financial statements typically required by the FTC's Franchise Rule.