What are the stated objectives of the auditor in relation to the Fat Shack financial statements?
Fat_Shack Franchise · 2025 FDDAnswer from 2025 FDD Document
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 GAAS 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, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these financial statements.
In performing an audit in accordance with GAAS, 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 Fat Shack Inc. and Subsidiary'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 Fat Shack Inc. and Subsidiary's ability to continue as a going concern for a reasonable period of time.
Source: Item 23 — Receipts (FDD pages 53–223)
What This Means (2025 FDD)
According to Fat Shack's 2025 Franchise Disclosure Document, the auditor's objectives are to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their opinion. The auditor clarifies that while reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit conducted according to GAAS (Generally Accepted Auditing Standards) will always detect a material misstatement.
The auditor notes that the risk of not detecting a material misstatement resulting from fraud is higher than that of one resulting from error. This is because fraud may involve activities like collusion, forgery, intentional omissions, misrepresentations, or the overriding of internal controls. The document defines misstatements as material if they could reasonably be expected to influence the economic decisions of users based on these financial statements, whether considered individually or in the aggregate.
To achieve these objectives, the auditor will exercise professional judgment and maintain professional skepticism throughout the audit. They will 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. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor will also obtain an understanding of internal control relevant to the audit to design appropriate audit procedures, but not to express an opinion on the effectiveness of Fat Shack's internal control.
Furthermore, the auditor will 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. Finally, the auditor will conclude whether there are conditions or events that raise substantial doubt about Fat Shack's ability to continue as a going concern for a reasonable period of time.