In auditing Hardees' financial statements, what must the auditor conclude regarding the company's ability to continue as a going concern?

According to Hardees' 2025 Franchise Disclosure Document, the auditor's responsibility includes concluding whether there are conditions or events that raise substantial doubt about the company's ability to continue as a going concern for a reasonable period of time. This assessment is a critical part of the audit process. The auditor must exercise professional judgment and maintain professional skepticism throughout the audit to identify and assess risks of material misstatement in the financial statements. This involves evaluating Hardees' accounting policies, estimates made by management, and the overall presentation of the financial statements. The auditor's conclusion directly impacts the credibility and reliability of the financial statements.

To reach this conclusion, the auditor examines evidence regarding amounts and disclosures in Hardees' consolidated financial statements on a test basis. They also obtain an understanding of Hardees' internal control system to design appropriate audit procedures, although they do not express an opinion on the effectiveness of the internal control. The auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error. However, it's important to note that reasonable assurance is not absolute, and there's always a risk that a material misstatement may not be detected.

The auditor's report must include their opinion on whether the financial statements present fairly Hardees' financial position, results of operations, and cash flows in accordance with U.S. generally accepted accounting principles. If the auditor identifies conditions or events that raise substantial doubt about Hardees' ability to continue as a going concern, this would typically be disclosed in the auditor's report, potentially affecting investor and franchisee confidence. The auditor is also required to communicate with those charged with governance regarding the scope and timing of the audit, significant findings, and internal control matters identified during the audit.

For a prospective Hardees franchisee, this means that the financial statements have been scrutinized by an independent auditor who has assessed the company's ability to remain viable. A clean audit opinion provides some level of comfort, while a qualified opinion or a disclosure about going concern issues could signal potential financial instability. Therefore, reviewing the auditor's report and understanding their conclusions is a crucial step in evaluating the financial health and stability of Hardees as a franchise opportunity.