What is the required approach to examining evidence related to amounts and disclosures in Fly Fitness's financial statements during an audit?
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 procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. This means the auditor does not review every single transaction or item, but rather selects a sample to gain reasonable assurance that the financial statements are free from material misstatement. This approach is consistent with generally accepted auditing standards.
The auditor's responsibilities also include identifying and assessing the risks of material misstatement in the financial statements, whether due to fraud or error, and designing audit procedures responsive to those risks. This involves exercising professional judgment and maintaining professional skepticism throughout the audit. The auditor must also evaluate the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
For a prospective Fly Fitness franchisee, this means that the financial statements presented in Item 21 of the FDD have been subjected to an independent audit, providing a degree of confidence in their reliability. However, it's important to recognize that an audit provides reasonable, but not absolute, assurance. The auditor's opinion indicates whether the financial statements present fairly the financial position of Fly Fitness in all material respects, but it does not guarantee that there are no errors or fraud.
It is also important to note that the auditor is required to be independent of Fly Fitness and to meet ethical requirements relevant to the audit. The auditor's report includes their opinion on whether the financial statements present fairly the financial position of Fly Fitness as of December 31, 2023, and the results of its operations and its cash flows for the year then ended, in accordance with accounting principles generally accepted in the United States of America.