When auditing Floors To Go, what is the purpose of obtaining an understanding of internal control?
Floors_To_Go 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 the Company's internal control. Accordingly, no such opinion is expressed.
Source: Item 23 — RECEIPTS (FDD pages 47–204)
What This Means (2025 FDD)
According to Floors To Go's 2025 Franchise Disclosure Document, when performing an audit, the auditors obtain an understanding of internal control to design audit procedures that are appropriate for the circumstances. However, this understanding is not for the purpose of expressing an opinion on the effectiveness of Floors To Go's internal control, and the auditors' report explicitly states that no such opinion is expressed. This means the auditors are assessing the internal controls to tailor their audit approach, but they are not providing a guarantee about how well those controls function.
For a prospective Floors To Go franchisee, this is relevant because it indicates that while the company's financial statements are audited, the audit focuses on the fair presentation of the financials, not on the strength of the company's internal controls. A material misstatement resulting from fraud has a higher risk of not being detected than one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
This distinction is important because strong internal controls can help prevent errors and fraud, which could ultimately impact the financial health of Floors To Go and, by extension, its franchisees. While the audit provides assurance that the financial statements are fairly presented, it doesn't offer specific insights into the robustness of the company's systems for preventing financial irregularities. Therefore, a franchisee may want to inquire separately about Floors To Go's internal control practices and risk management procedures to gain a more complete picture of the company's financial oversight.