What does the auditor mean by 'reasonable assurance' in the context of auditing Dryject's financial statements?
Dryject Franchise · 2025 FDDAnswer from 2025 FDD Document
My 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 my 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 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 8 — BUSINESS RELATIONSHIP (FDD pages 68–229)
What This Means (2025 FDD)
According to Dryject's 2025 Franchise Disclosure Document, the auditor's objective is to obtain reasonable assurance about whether the financial statements are free from material misstatement, whether due to fraud or error. The auditor aims to issue a report that includes their opinion on the financial statements. Reasonable assurance is defined as a high level of assurance, but it is not absolute.
The auditor clarifies that reasonable assurance does not guarantee that an audit conducted according to generally accepted auditing standards will always detect a material misstatement. There is a higher risk of not detecting a material misstatement resulting from fraud compared to error, as fraud may involve activities like collusion, forgery, intentional omissions, misrepresentations, or overriding internal controls.
For a prospective Dryject franchisee, this means that while the financial statements have been audited to a high standard, there is still a possibility that undetected errors or fraud could exist. It is important to understand that an audit provides a reasonable level of confidence, but not a guarantee of complete accuracy. Misstatements are considered material if they would likely influence the judgment of a reasonable user of the financial statements.