During the Fly To Fit audit, what level of skepticism should be maintained?
Fly_To_Fit Franchise · 2024 FDDAnswer from 2024 FDD Document
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 of 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 GAAS 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 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.
In performing an audit in accordance with GAAS, 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\nerror, and design and perform audit procedures responsive to those risks. Such procedures include\nexamining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 44)
What This Means (2024 FDD)
According to Fly To Fit's 2024 Franchise Disclosure Document, auditors must exercise professional judgment and maintain professional skepticism throughout the audit. This means the auditors should have a questioning mind and critically assess the audit evidence. The auditors' objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error, and to issue an auditor's report that includes their 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 GAAS will always detect a material misstatement when it exists.
The FDD emphasizes that 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 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.
For a prospective Fly To Fit franchisee, this indicates that the financial statements have been examined by an independent accountant, who has provided an opinion on their fairness. However, it's important to recognize that even an audited financial statement is not a guarantee of complete accuracy. The auditor's opinion is based on reasonable assurance, not absolute certainty, and the audit is subject to the risk of not detecting material misstatements, especially those resulting from fraud. Therefore, while the audit provides a level of confidence in the financial statements, potential franchisees should still conduct their own due diligence and seek professional advice when evaluating the Fly To Fit franchise opportunity.