During the audit of Hardees' combined consolidated financial statements, what is the auditor required to do regarding professional judgment and skepticism?
Hardees Franchise · 2025 FDDAnswer from 2025 FDD Document
the combined consolidated 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 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 combined consolidated 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 combined consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks.
Source: Item 21 — Financial Statements (FDD pages 84–85)
What This Means (2025 FDD)
According to Hardees's 2025 Franchise Disclosure Document, when performing an audit in accordance with Generally Accepted Auditing Standards (GAAS), the auditor is required to exercise professional judgment and maintain professional skepticism throughout the audit. This means the auditor must use their expertise and experience to make informed decisions during the audit process and maintain a questioning mind, critically assessing the validity of evidence and representations provided by Hardees's management.
This requirement ensures that the audit is conducted with objectivity and integrity, reducing the risk of material misstatements in the financial statements. The auditor must identify and assess the risks of material misstatement of the combined consolidated financial statements, whether due to fraud or error. They design and perform audit procedures responsive to those risks, including examining evidence regarding the amounts and disclosures in the financial statements on a test basis.
By exercising professional judgment and maintaining skepticism, the auditor aims to obtain reasonable assurance that the financial statements are free from material misstatement. This benefits prospective Hardees franchisees by providing a more reliable view of the company's financial health, which is crucial for making informed investment decisions. The auditor also evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined consolidated financial statements.
Finally, the auditor must conclude whether there are conditions or events that raise substantial doubt about Hardees's ability to continue as a going concern for a reasonable period. The auditor is also required to communicate with those charged with governance regarding the planned scope and timing of the audit, significant audit findings, and certain internal control related matters identified during the audit.