What is the auditor's responsibility regarding the design and performance of audit procedures responsive to the risks of material misstatement of Exit Realty Corp. International's financial statements?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
that the financial statements are available to be issued.
Auditor's Responsibilities for the Audit of the Financial Statements
Our 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 our 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.
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 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 financial statements.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the auditor's responsibilities include identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error. The auditor is then responsible for designing and performing audit procedures that are responsive to those identified risks. These procedures involve examining evidence regarding the amounts and disclosures in the financial statements on a test basis.
In addition to designing and performing audit procedures, the auditor must obtain an understanding of internal control relevant to the audit. This understanding is used to design audit procedures that are appropriate for the circumstances, but it is not for the purpose of expressing an opinion on the effectiveness of Exit's internal control. The auditor also evaluates the appropriateness of the accounting policies used, the reasonableness of significant accounting estimates made by management, and the overall presentation of the financial statements.
The auditor's responsibilities also extend to concluding whether there are conditions or events that raise substantial doubt about Exit's ability to continue as a going concern for a reasonable period of time. Furthermore, the auditor is 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 identified during the audit. This communication ensures transparency and provides valuable insights to the governing body regarding the financial health and practices of Exit.