During the audit of Face Foundrie's financial statements, is an opinion expressed on the effectiveness of the company's internal control?
Face_Foundrie Franchise · 2025 FDDAnswer from 2025 FDD Document
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, including omissions, 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.
- 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 the Company'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 the Company's ability to continue as a going concern for a reasonable period of time.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 73)
What This Means (2025 FDD)
According to Face Foundrie's 2025 Franchise Disclosure Document, the independent auditor's report does not express an opinion on the effectiveness of the company's internal control. The report outlines the auditor's responsibilities, which include obtaining an understanding of internal control relevant to the audit to design appropriate procedures. However, this understanding is not for the purpose of expressing an opinion on the effectiveness of Face Foundrie's internal control, and the report explicitly states that no such opinion is expressed.
This means that while the auditors consider internal controls to the extent necessary to conduct their audit of Face Foundrie's financial statements, they do not provide a separate assessment or guarantee regarding how well those controls function. Prospective franchisees should understand that the audit focuses on the accuracy and fairness of the financial statements themselves, rather than the systems and processes that generate those statements.
It is important for potential Face Foundrie franchisees to recognize the distinction between an audit of financial statements and an audit of internal controls. While the financial statement audit provides assurance that the financial information is fairly presented, it does not offer the same level of assurance about the effectiveness of the company's internal control systems. If a franchisee is concerned about the strength of Face Foundrie's internal controls, they may want to ask the franchisor for more information about their control environment and risk management practices.