When auditing Floors To Go, are the risks of material misstatement assessed?
Floors_To_Go 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 auditors' 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 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 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 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 23 — RECEIPTS (FDD pages 47–204)
What This Means (2025 FDD)
According to the 2025 Floors To Go FDD, the auditors are required to assess the risks of material misstatement of the financial statements, whether due to fraud or error. This assessment is a key part of the audit process. The auditors then design and perform audit procedures that are responsive to these identified risks. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis.
This process means that the auditors for Floors To Go will focus their attention on areas where they believe there is a higher risk of errors or fraud that could significantly impact the financial statements. The auditors' objective is to obtain reasonable assurance that the financial statements are free from material misstatement. However, it's important to note that reasonable assurance is not absolute, and there is always a risk that a material misstatement may not be detected, especially if it results from fraud involving collusion, forgery, or intentional misrepresentation.
For a prospective Floors To Go franchisee, this indicates that the company's financial statements are subject to a rigorous audit process designed to identify and address potential misstatements. This can provide a level of confidence in the accuracy and reliability of the financial information presented. Franchisees may want to inquire about any significant audit findings or internal control matters that the auditors have communicated to those charged with governance, as this could provide further insight into the company's financial management practices.