How are misstatements, including omissions, considered material in Fly Fitness's financial statements?

According to Fly Fitness's 2024 Franchise Disclosure Document, 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 user based on the financial statements. This definition is used by the auditor when assessing the fairness and accuracy of Fly Fitness's financial statements.

For a prospective Fly Fitness franchisee, this means that the financial statements should be reliable and free from significant errors or omissions that could mislead them. The auditor's responsibility is to provide reasonable assurance that the financial statements present a fair view of Fly Fitness's financial position. This includes assessing the risk of material misstatement, whether due to fraud or error, and designing audit procedures to detect such misstatements.

It is important to note that the auditor's assurance is not absolute. There is always a risk that a material misstatement may not be detected, especially if it results from fraud involving collusion, forgery, or intentional omissions. However, the auditor must exercise professional judgment and maintain professional skepticism throughout the audit to minimize this risk. The auditor also evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by Fly Fitness's management.

This definition of materiality aligns with standard accounting practices, ensuring that financial statements are useful and reliable for decision-making. A prospective franchisee should carefully review the audited financial statements and related disclosures in the FDD, understanding that the auditor has assessed the statements for material misstatements that could influence their investment decision.