According to the audit of Even Hotels, what constitutes a material misstatement?

According to Even Hotels' 2025 Franchise Disclosure Document, a material misstatement is defined in the context of the auditor's responsibilities. Specifically, 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. This definition applies whether the misstatement is due to fraud or error.

For a prospective Even Hotels franchisee, this means that the financial statements presented in the FDD are audited to ensure they are free from material misstatements that could mislead a potential investor. The auditor's role is to provide reasonable assurance, although not a guarantee, that the financial statements accurately reflect the company's financial position. The risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error because fraud may involve more complex concealment.

The audit is conducted in accordance with US Generally Accepted Auditing Standards (US GAAS), which requires the auditors to exercise professional judgment, assess risks of material misstatement, understand internal controls, evaluate accounting policies, and assess the company's ability to continue as a going concern. This process aims to give franchisees confidence that the financial information they are reviewing is reliable and fairly presented, which is crucial for making informed investment decisions.

It is important for a prospective Even Hotels franchisee to understand the scope and limitations of an audit. While the audit provides a level of assurance, it is not an absolute guarantee of accuracy. Franchisees should carefully review the financial statements and consult with their own financial advisors to fully understand the financial health of Even Hotels and the potential risks and rewards of investing in the franchise.