During audits, what judgment should be exercised by professionals assessing Goldfish Swim School's consolidated financial statements?
Goldfish_Swim_School Franchise · 2025 FDDAnswer from 2025 FDD Document
In performing audits in accordance with GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audits.
- Identify and assess the risks of material misstatement of the consolidated 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 consolidated financial statements.
- Obtain an understanding of internal control relevant to the audits 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 the Company's internal control. Accordingly, no such opinion is expressed.
- 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 consolidated financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
Source: Item 22 — CONTRACTS (FDD pages 76–77)
What This Means (2025 FDD)
According to Goldfish Swim School's 2025 Franchise Disclosure Document, when performing audits in accordance with Generally Accepted Auditing Standards (GAAS), auditors must exercise professional judgment and maintain professional skepticism throughout the audits. This involves critically assessing the risks of material misstatement in the consolidated financial statements, whether due to fraud or error, and designing audit procedures that are responsive to those identified risks. These procedures include examining evidence regarding the amounts and disclosures in the financial statements on a test basis. Auditors are also required to obtain an understanding of internal control relevant to the audits.
Furthermore, the auditors must evaluate the appropriateness of the accounting policies used by Goldfish Swim School's management and the reasonableness of significant accounting estimates made by them. They also evaluate the overall presentation of the consolidated financial statements to ensure they are fairly presented. Finally, the auditors must conclude whether there are conditions or events that raise substantial doubt about Goldfish Swim School's ability to continue as a going concern for a reasonable period of time.
For a prospective Goldfish Swim School franchisee, this means that the financial statements presented in the FDD have been subjected to a rigorous audit process. This process is designed to provide reasonable assurance that the financial statements are free from material misstatements. However, it is important to note that even with these procedures, there is no absolute guarantee that all misstatements will be detected, especially those resulting from fraud. The auditor's report provides an opinion on the fairness of the financial statements, which can help a potential franchisee assess the financial health and stability of Goldfish Swim School.