What procedures are included when identifying and assessing the risks of material misstatement of Fly Fitness's financial statements?
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, the auditor's responsibilities when assessing the risk of material misstatement in financial statements include several key procedures. These procedures are designed to provide reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. However, it's important to note that reasonable assurance is not absolute, and there's 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 auditor will exercise professional judgment and maintain professional skepticism throughout the audit. This means the auditor will critically assess the information provided and not assume that management is always honest or correct. The auditor will also 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 examine evidence regarding the amounts and disclosures in the financial statements on a test basis. This involves selecting samples of transactions and balances to verify their accuracy and completeness. They will also 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.
Finally, the auditor will 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 also 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.