What does the auditor do to obtain an understanding of internal control relevant to the audit of Desi District?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
le 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.
924 W.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 52)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, the auditor's objective is to obtain an understanding of internal control relevant to the audit. However, this understanding is specifically for the purpose of designing audit procedures that are appropriate for the circumstances. The auditor's work does not extend to expressing an opinion on the effectiveness of Desi District's internal control, and the report explicitly states that no such opinion is provided.
To achieve this understanding, the auditor identifies and assesses the risks of material misstatement of the financial statements, whether due to fraud or error. They design and perform audit procedures responsive to those risks, which include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor exercises professional judgment and maintains professional skepticism throughout the audit.
Prospective franchisees should understand that while the audit provides an independent assessment of Desi District's financial statements, it does not guarantee the absence of all misstatements. The auditor's focus on internal control is limited to what is necessary for designing appropriate audit procedures, not for evaluating the overall effectiveness of the company's internal control systems.