What is the auditor's responsibility regarding the evaluation of the reasonableness of significant accounting estimates made by Exit Realty Corp. International's management?
Exit 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 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.
- 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 EXIT Realty Corp. International's internal control. Accordingly, no such opinion is expressed.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about EXIT Realty Corp. International's ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Source: Item 23 — RECEIPT (FDD pages 42–235)
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, the auditor has specific responsibilities regarding the evaluation of the reasonableness of significant accounting estimates made by the company's management. As part of an audit conducted under generally accepted auditing standards, the auditor must evaluate the appropriateness of the accounting policies used by Exit's management. The auditor must also assess whether the significant accounting estimates made by management are reasonable. This evaluation is a crucial step in forming an opinion on the fairness of Exit's financial statements.
This responsibility ensures that the financial statements are not misleading due to inappropriate accounting policies or unreasonable estimates. For a prospective Exit franchisee, this means that the financial information provided by Exit has been scrutinized by an independent auditor who has assessed the key assumptions and judgments made by the company's management. This process adds credibility to the financial statements and provides a level of assurance that the numbers presented are based on sound accounting principles and reasonable estimates.
The auditor's evaluation extends to the overall presentation of the financial statements, ensuring they comply with accounting standards. Additionally, the auditor must determine if there are any conditions or events that raise substantial doubt about Exit's ability to continue as a going concern. The auditor is also obligated to communicate with those charged with governance regarding the scope and timing of the audit, any significant findings, and internal control-related matters identified during the audit.
In summary, the auditor's role is to provide an independent assessment of Exit's financial statements, including the reasonableness of management's accounting estimates. This assessment helps ensure that prospective franchisees and other stakeholders can rely on the financial information provided by Exit when making investment or business decisions. The audit aims to detect material misstatements, whether due to fraud or error, and to provide an opinion on whether the financial statements present fairly the company's financial position and performance.