What is the auditor's objective when auditing Gokhale Method's financial statements?
Gokhale_Method Franchise · 2024 FDDAnswer from 2024 FDD Document
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 auditors' 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 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.
Source: Item 22 — CONTRACTS (FDD page 34)
What This Means (2024 FDD)
According to the 2024 Gokhale Method FDD, the auditor's primary objective is to gain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. The auditor also aims to issue a report that includes their opinion on the financial statements. While reasonable assurance is a high level of confidence, it is not an absolute guarantee that all material misstatements will be detected.
The FDD clarifies that the risk of not detecting a material misstatement resulting from fraud is higher than that of error. This is because fraud may involve intentional actions such as collusion, forgery, intentional omissions, misrepresentations, or the overriding of internal controls. Misstatements are considered material if they could influence the judgment of a reasonable user of the financial statements.
To achieve these objectives, the auditor will exercise professional judgment and maintain professional skepticism throughout the audit. They will identify and assess the risks of material misstatement, design and perform audit procedures responsive to those risks, and examine evidence regarding the amounts and disclosures in the financial statements on a test basis. The auditor will also obtain an understanding of internal control relevant to the audit, evaluate the appropriateness of accounting policies used, assess the reasonableness of significant accounting estimates made by management, and evaluate the overall presentation of the financial statements. Finally, the auditor will conclude whether there are conditions or events that raise substantial doubt about Gokhale Method's ability to continue as a going concern.