Regarding Dog Haus's financial statements, what is the potential impact of using estimates and assumptions?
Dog_Haus Franchise · 2025 FDDAnswer from 2025 FDD Document
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The financial statements are presented on the accrual basis of accounting.
GAAP requires management to evaluate tax positions taken and recognize a tax liability (or asset) if the organization has taken an uncertain tax position that more likely than not would not be sustained upon examination by the Internal Revenue Service (IRS). Management has analyzed the tax positions, and has concluded that as of December 31, 2024 and 2023, there are no positions taken or expected to be taken that would require recognition of a liability (or an asset) or disclosure in the financial statements. Furthermore, under current law, no federal or state income taxes are paid directly by the LLC, as each member is held responsible for his or her respective share of LLC income or loss. Certain states also assess fees on gross revenues.
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 our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years ended December 31, 2024, 2023 and 2022 in accordance with accounting principles generally accepted in the United States of America.
Source: Item 23 — RECEIPTS (FDD pages 87–328)
What This Means (2025 FDD)
Based on the 2025 Dog Haus Franchise Disclosure Document, the company's financial statements are prepared following accounting principles generally accepted in the United States of America (GAAP). While the document outlines various accounting policies, such as the basis of accounting, cash handling, treatment of property and equipment, and handling of indefinite-lived intangible assets like trademarks, it does not specifically discuss the impact of using estimates and assumptions on the financial statements. Instead, the document focuses on how Dog Haus accounts for specific items like marketing fees, prepaid credit liabilities, and employee benefit plans.
However, the FDD does mention that management is responsible for preparing financial statements that are free from material misstatement, whether due to fraud or error. This implies that while estimates and assumptions are a necessary part of financial reporting, Dog Haus's management is expected to ensure these estimates do not lead to significant inaccuracies. The independent auditor's report also states that the auditor's responsibility is to express an opinion on whether the financial statements present fairly the financial position of Dog Haus, in all material respects, in accordance with accounting principles generally accepted in the United States of America. This suggests that the auditors have assessed the reasonableness of the estimates and assumptions used by management.
Because the FDD does not provide specific details on the types of estimates and assumptions used or their potential impact, prospective franchisees should directly ask Dog Haus's management about the critical accounting estimates used in preparing their financial statements. Understanding these estimates and their potential impact can provide a clearer picture of the financial risks and uncertainties associated with investing in a Dog Haus franchise. It would be prudent to inquire about the sensitivity of these estimates and how changes in underlying assumptions could affect the reported financial results.