What is the auditors' responsibility regarding professional skepticism during the audit of Even Hotels?

According to Even Hotels' 2025 Franchise Disclosure Document, the auditors are required to exercise professional judgment and maintain professional skepticism throughout the audit. This means the auditors must have a questioning mind and critically assess the audit evidence presented to them. They should not assume that management is dishonest, but they also should not assume they are unquestionably honest.

The auditors' objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. However, reasonable assurance is not absolute, and there is always a risk that a material misstatement may not be detected. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

In practical terms, this means that the auditors will design and perform audit procedures that are responsive to the risks of material misstatement. These procedures will include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditors will also evaluate the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management. They will also evaluate the overall presentation of the financial statements.

The auditors are also required to communicate with those charged with governance regarding the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that they identified during the audit. This communication helps to ensure that those charged with governance are aware of the risks of material misstatement and that the auditors are taking appropriate steps to address those risks. For a prospective Even Hotels franchisee, this indicates that the brand's financial audits are conducted with a degree of scrutiny and independent verification, which can provide some assurance about the financial health of the company.