During the audit of Engel & Volkers' consolidated financial statements, what is the auditor's responsibility regarding the identification and assessment of risks of material misstatement?
Engel_Volkers Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing an audit in accordance with generally accepted auditing standards, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Engel & Völkers Americas, Inc. and Subsidiary's internal control. Accordingly, no such opinion is expressed.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 88)
What This Means (2025 FDD)
According to Engel & Volkers' 2025 Franchise Disclosure Document, the auditor has specific responsibilities concerning the identification and assessment of risks of material misstatement in the consolidated financial statements. These responsibilities are integral to conducting an audit in accordance with generally accepted auditing standards.
The auditor is required to identify and assess the risks of material misstatement within the consolidated financial statements, regardless of whether these misstatements are due to fraud or error. In response to these identified risks, the auditor must design and perform audit procedures that are tailored to address the specific risks identified. These procedures involve examining evidence related to the amounts and disclosures presented in the consolidated financial statements, conducted on a test basis.
Furthermore, the auditor must gain an understanding of the internal controls that are relevant to the audit. This understanding is crucial for designing audit procedures that are appropriate for the given circumstances. However, it's important to note that the auditor's objective is not to express an opinion on the effectiveness of Engel & Volkers Americas, Inc. and Subsidiary's internal control, and therefore, no such opinion is provided. The auditor exercises professional judgment and maintains professional skepticism throughout the audit.