During the audit for Fly Fitness, what level of professional judgment and skepticism is expected?
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, 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 during the audit process and must maintain a questioning mind and critically assess the information presented to them. This approach is aligned with generally accepted auditing standards. The auditors' objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. However, reasonable assurance is not absolute, and there is always a risk that a material misstatement may not be detected. 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.
Specifically, the auditors must 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 auditors must also obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. However, the purpose of this understanding is not to express an opinion on the effectiveness of Fly Fitness's internal control.
Furthermore, the auditors must 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. They must 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 of time. The auditors are required to communicate with those charged with governance regarding the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters identified during the audit.