During the Fly Fitness audit, what level of professional judgment should be exercised?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
ally or in the aggregate, they would influence the judgment made by a reasonable use based on the financial statements.
In performing an audit 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\neffectiveness of Fly Fitness Franchise LLC's internal control. Accordingly, no such opinion is\nexpressed.
- 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.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 44)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, during the audit of the financial statements, the auditors are expected to exercise professional judgment and maintain professional skepticism throughout the audit. This means the auditors must use their expertise and experience to make informed decisions and critically assess the information presented by Fly Fitness.
The auditors' responsibilities include identifying and assessing the risks of material misstatement in the financial statements, whether due to fraud or error. They design and perform audit procedures responsive to those risks, which involve examining evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditors also obtain an understanding of internal control relevant to the audit to design appropriate procedures, though they do not express an opinion on the effectiveness of Fly Fitness's internal control.
Furthermore, the auditors evaluate the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by Fly Fitness's management. They also conclude whether there are conditions or events that raise substantial doubt about Fly Fitness's ability to continue as a going concern for a reasonable period. These steps ensure that the financial statements are presented fairly and in accordance with generally accepted accounting principles.
For a prospective Fly Fitness franchisee, this indicates that the franchisor's financial statements are subject to a rigorous audit process, providing a degree of assurance about their reliability. However, it's important to remember that even with these measures, an audit provides reasonable, but not absolute, assurance that the financial statements are free from material misstatement.