What is the auditor's responsibility regarding material misstatements in Dog Haus's financial statements?
Dog_Haus Franchise · 2025 FDDAnswer from 2025 FDD Document
generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the 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 the Company's ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Auditors' 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 from material misstatement, whether due to fraud or error, and to issue an auditors' 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.
Source: Item 23 — RECEIPTS (FDD pages 87–328)
What This Means (2025 FDD)
According to Dog Haus's 2025 Franchise Disclosure Document, the auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. The auditor then issues a report including their opinion. This assurance, while high, isn't absolute, so an audit following Generally Accepted Auditing Standards (GAAS) doesn't guarantee every material misstatement will be detected.
The FDD clarifies that the risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error. This is because fraud may involve actions like collusion, forgery, intentional omissions, misrepresentations, or overriding internal controls. The document defines misstatements as material if they would likely influence the judgment of a reasonable user of the financial statements, either individually or in the aggregate.
To perform the audit, the auditor must exercise professional judgment and maintain professional skepticism throughout the process. They identify and assess the risks of material misstatement, whether due to fraud or error, and design audit procedures responsive 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, but they do not express an opinion on the effectiveness of the company's internal control. Finally, the auditor evaluates the appropriateness of accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements, and communicates significant findings to those charged with governance.