What is the auditor's responsibility regarding material misstatement in Fly Fitness's financial statements?
Fly_Fitness Franchise · 2024 FDDAnswer from 2024 FDD Document
after the date that the financial statements are available to be issued.
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 generally accepted auditing standards 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, including omissions, are considered material if there is a substantial likelihood that, individually 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.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Fly Fitness Franchise LLC's ability to continue as a going concern for a reasonable period of time.
We are required to communicate those charged with governance regarding, among other matters, the planned scope and time of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 44)
What This Means (2024 FDD)
According to Fly Fitness's 2024 Franchise Disclosure Document, the auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. The auditor is also responsible for issuing a report that includes their opinion on the financial statements. While reasonable assurance is a high level of assurance, it is not absolute, and there is no guarantee that an audit will always detect a material misstatement. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error because fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Misstatements, including omissions, are considered material if there is a substantial likelihood that they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit, the auditor must exercise professional judgment and maintain professional skepticism throughout the audit. They must also 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 must 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 Fly Fitness's internal control. 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. The auditor 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 auditor is required to communicate with those charged with governance regarding the planned scope and time of the audit, significant audit findings, and certain internal control related matters identified during the audit. For a potential Fly Fitness franchisee, this means that the financial statements have been examined by an independent party who is responsible for providing reasonable assurance that the statements are free from material misstatement. However, it is important to recognize that an audit does not guarantee the complete absence of misstatements, especially those resulting from fraud.